Is JCPenney the Next Retail Casualty? Stock Tumbles 10% on Bankruptcy Fears

On Thursday, a report surfaced that J.C. Penney Company Inc. had hired advisors to explore debt restructuring options to buy itself more time for a turnaround. The struggling department store chain promptly denied the report, writing in a statement that it “routinely hire[s] external advisors to evaluate opportunities” and “can confirm that we have not hired any advisors to prepare for an in-court restructuring or bankruptcy.”

Still, experts contend that even if the company can ward off a Chapter 11 filing in the short term, it has long-term financial woes. According to filings with the U.S. Securities and Exchange Commission, its debt amounts to roughly $4 billion. (About $1.5 billion is available under a revolving credit line.) During Monday morning trading, its shares plunged more than 10% to 81 cents.

The company’s stock has been in the red for months despite CEO Jane Soltau’s bid to help JCPenney undergo a retail makeover. (The executive took the helm in October following Marvin Ellison’s departure for Lowe’s.)

In its turnaround strategy, the retailer nixed a few dozen underperforming stores over the course of several months and took on new talent at the start of the year, including chief transformation officer Truett Horne.

“By appointing and recruiting the right leaders who have the expertise and fortitude to accelerate a turnaround strategy, our senior executive team will play an instrumental role in energizing teams, connecting with our customers and positioning JCPenney for profitable growth,” Soltau said in January. (The company operates more than 860 stores and 95,000 employees.)

But experts are also wary of the company’s ability to turn a profit after months of diminishing returns. In its latest earnings report in May, JCPenney posted first-quarter sales that fell 5.6% to $2.44 billion. It widened its adjusted net losses to $147 million, or 46 cents per share.

“The issue for JCPenney is that they won’t see results from the new CEO and any merchandising initiatives for a few more quarters; a turnaround of this magnitude could take years,” said Gabriella Santaniello, founder and CEO of retail research firm A Line Partners. “So the debt is maturing and even though it’s a few years away, it might happen before they see results. . . . It’s a race to the finish line right now.”

Analysts estimate that the 117-year-old retailer’s sharp descent started around 2011, when Apple and Target exec Ron Johnson was tapped as CEO to breathe new life into the company after it posted a drop in revenues. Johnson’s moves were said to have alienated JCPenney’s core consumers, leading to the business’ further decline. Shares reportedly dipped more than 50% under Johnson’s leadership, followed by the company’s C-suite shakeups and retail missteps in the digital age.

“It is the end of an era. I don’t believe [JCPenney] can recover,” added Jane Hali, CEO of retail investment research firm Jane Hali & Associates. “Consumers want an edited assortment with a point of view. You can buy from e-tailers, rent clothing you can resell, have a great assortment sent to you via a subscription service — all of this takes share from the traditional retailers that don’t move with the times.”

The Plano, Texas-based chain continues to face stiff competition from off-price retailers such as TJ Maxx and department stores like Kohl’s as well as e-commerce giant Amazon. Amid the changing retail landscape, established brick-and-mortar stores, including Sears and Toys “R” Us, have sought bankruptcy protection, while others have trimmed their physical footprints in an effort to lower costs.

In February, JCPenney said it would close about 27 stores this year, including 18 full-line stores (three of which were identified in January) plus nine ancillary home and furniture outposts.

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