Saad Ullah
Unsustainable Finance
According to a report on Reuters, the store is facing difficulties in running its businesses as all of its 850 stores have been closed due to the COVID 19 pandemic. The Plano based store chain has enough liquidity to ride out the wave for the next few months, but it understands that even after its stores will open, it will have a hard time generating sales as people will be more keen towards rebuilding their lives and making up for the lost income, rather than spending what little money they have on items from its stores.
Filing for bankruptcy will give J.C. Penny a relaxation in its already strained finances, creating a breathing room for it to pay back its investors. A spokesperson for J.C. Penny said it,
has been engaged in discussions with its lenders since mid-2019 to evaluate options to strengthen its balance sheet and maximize its financial flexibility, a process that has become even more important as our stores have also closed due to the pandemic.
More than a century in business, the departmental store chain recently has restructured its target market and now caters for the middle class family structure by offering and economical range of apparels and clothing.
Drowning in Debt
For J.C. Penny, debts are becoming problematic. It has to make a payment of USD 12 million, due today, with another whopping USD 105 million in June. It also must consider that another sizeable chunk of debt, around USD 2 billion, will be maturing in 3 years time. The bonds are currently trading around 43 cents and are beginning to be a cause of concern to investors. The store chain also accrues USD 300 million in interest expenses.
According to Fitch Ratings Inc., a firm specializing in credit rating, J.C. Penny can face further troubles as it predicts a 25% fall in its revenue, leading to an EBIT (Earnings Before Interest and Taxes) of USD 400 million by the end of this year, something that Fitch Ratings has called “materially negative”.
J.C. Penny has already been facing immense competition from online stores. It has its own digital presence, but it offers only a fraction of their income. The 118 year old company has already furloughed more than 85,000 employees as its stores virtually shut down due to COVID 19.
Saad Ullah
