For J.C. Penney CEO, Debt Haunts Turnaround Bid

NEW YORK, United States — J.C. Penney Co Inc’s inventory has plunged greater than 70 p.c over the previous 12 months and now trades below $1. Its first-quarter monetary loss practically doubled to $154 million.

However in newly-minted Chief Govt Officer Jill Soltau’s turnaround bid, one other determine looms bigger: $4 billion.

That’s the tough complete of a doubtlessly crushing debt load on Penney’s steadiness sheet, a ticking time bomb that would derail Soltau’s try to revitalise the 117-year-old division retailer chain.

Soltau, employed late final 12 months from craft and materials vendor Jo-Ann Shops, is trying to revive Penney’s roots as a retailer of mid-priced attire for middle-class households. Within the quick time period, she is decreasing stock at shops to spice up margins on merchandise and shutting underperforming retailers.

Soltau, who declined an interview request by means of a spokeswoman, earlier this 12 months described Penney’s turnaround try as “an extended street” with “no silver bullets” that “will take time.”

Penney has about $1.75 billion in liquidity within the type of money and cash out there below a revolving credit score line, some extent Soltau has emphasised in conferences with hedge funds holding the retailer’s loans and bonds, an individual acquainted with the matter mentioned. That makes Penney’s near-term debt funds manageable.

However greater than $2 billion comes due in 2023, the legacy of a mortgage tapped six years in the past after Penney changed former CEO Ron Johnson. The onetime pioneer of Apple Inc’s stores launched costly renovations of Penney shops and eradicated coupons, sparking a buyer backlash that resulted in plunging gross sales.

Johnson was certainly one of 4 executives who’ve tried to show Penney round since 2011. Macy’s Inc, by comparability, had the identical CEO since 2003 till a latest change, whereas Kohls Corp lately tapped a brand new high government to succeed one who had the reins since 2008.

Declining visits from buyers have led to years of falling gross sales and strained money circulation at Penney, elevating considerations amongst shareholders, collectors and distributors transport merchandise that the corporate gained’t have the ability to meet its monetary obligations, even these 4 years away.

The result’s Penney employed advisers to discover debt restructuring choices that will purchase extra time to forge a turnaround, Reuters reported in July. Penney subsequently confirmed hiring advisers to enhance its steadiness sheet after traders dumped its shares, and added it was not making chapter preparations.

“We weren’t shocked,” mentioned Levi Strauss & Co Chief Govt Officer Chip Bergh in an interview. “We’re taking a look at their debt and we’re managing our credit score with them appropriately.”

Bergh has urged Penney to inventory extra of his firm’s denim and buy much less from poorer promoting manufacturers. “They’ve received to show their enterprise round and put some factors on the board,” he mentioned.

Penney’s newest debt advisers embrace restructuring specialists from legislation agency Kirkland & Ellis LLP and funding financial institution Lazard Ltd, in keeping with folks acquainted with the hires.

The corporations, which had no remark, have labored on vital exercises with different retailers, together with on a debt restructuring earlier this 12 months for luxurious clothier Neiman Marcus Group Ltd executed with out the necessity for a chapter submitting.

The advisers should not exploring a chapter submitting for Penney and are targeted on transforming funds exterior of courtroom proceedings, one of many sources mentioned. Penney took comparable steps in 2013, resulting in a brand new mortgage it has refinanced to come back due in 4 years.

Levi’s Bergh mentioned Penney is a “great distance away” from struggling the destiny of Sears Holdings Corp, which filed for chapter final 12 months. “It’s price declaring that when Sears declared chapter, we had negligible monetary publicity as a result of we had been managing credit score in an acceptable method. We’re doing the identical factor with J.C. Penney,” he mentioned.

Choices into account for Penney embrace elevating more money and negotiating with collectors to push out debt maturities, mentioned an individual acquainted with the matter. Penney might additionally scale back liabilities and delay debt funds by providing new bonds to traders whose present holdings have declined in worth as results of the retailer’s monetary misery, the supply mentioned.

A Penney spokeswoman declined to remark additional on the corporate’s advisers or future monetary plans.

Joe Shamie, president of Delta Kids, which has provided Penney with kids’s furnishings for greater than 30 years, is certainly one of many banking on the retailer and its monetary backers coming by means of with a long-term technique.

“We want them to outlive. We can’t do it with out their persevering with to obtain assist and a credit score line so we are able to provide JCP with nice product and so they can inventory their cabinets and repair their clients,” Shamie mentioned.

Soltau is trying to buck the development of troubled bricks-and-mortar retailers failing amid the rise of Amazon.com Inc and dominance from bigger rivals resembling Kohls, Walmart Inc and Goal Corp. As well as, Penney faces fierce competitors from low cost retailers resembling TJX Cos Inc’s Marshalls and T.J. Maxx chains.

She has shifted Penney’s strategic priorities to refocus on the retailer’s once-thriving and higher-margin attire enterprise.

The strikes have contributed to near-term monetary ache. Jettisoning Penney’s residence home equipment enterprise and all however canceling its furnishings choices mixed to harm gross sales in the course of the first three months of the 12 months.

Penney is revamping shops and clearing out previous merchandise to make extra room for sure residence items and ladies’s attire. Penney is also testing a brand new centralised pickup and returns space anticipated to be rolled out in tons of of shops, and lately began a brand new streamlined checkout course of.

Soltau has lured Michelle Wlazlo from Goal to be chief service provider and Truett Horne from consulting agency McKinsey & Co to tackle a brand new position creating the corporate’s long-term technique.

Different efforts predating Soltau embrace launching an enormous and tall males’s clothes model that includes former skilled basketball star Shaquille O’Neal and a partnership with Fanatics Inc aiming to draw sports activities followers with the newest workforce attire on retailer racks. FACTBOX

Nonetheless, the retailer faces longstanding challenges that stretch past shops. Penny’s web site site visitors within the second quarter declined in contrast with rival Kohls, with stops at its homepage falling 11 p.c and visits past there sinking 41.4 p.c in contrast with the identical interval final 12 months, in keeping with information from analytics agency SimilarWeb.

By Jessica DiNapoli, Mike Spector and Melissa Fares; editors: Vanessa O’Connell and Edward Tobin.