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Why JCPenney Just Filed a Restraining Order Against Sephora

Update: Sephora has filed a motion to dissolve in response to JCPenney’s temporary restraining order.

What we originally reported:

Beleaguered retailer J.C. Penney Co. has taken legal action against business partner Sephora.

As JCPenney begins to reopen its stores, the Plano, Texas-based company has filed a temporary restraining order against Sephora in Texas district court yesterday — in an attempt to prevent the makeup giant from purportedly exiting a longterm contract early.

According to the filing, Sephora — JCPenney’s only exclusive beauty partner — has asserted that its more than 600 shop-in-shops in JCPenney’s units will not reopen as the retailer begins to unlock its doors. Sephora, JCPenney says, wants to amend the terms of their longterm agreement, which began in 2009 and does not expire “for several years,” so that it will end in April 2021. 

JCPenney, which is looking to reopen nine stores this week, stated in the filing that it “would suffer irreparable harm, including the disruption of its business, the loss of clientele, and the loss of goodwill” if the Sephora contract were to be terminated.

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“It would be difficult if not impossible to calculate the damages of a knife-edge termination of the agreement, and the damage done would not be sufficiently captured by monetary damages awarded against Sephora after-the-fact,” the filing reads.

The squabble with Sephora is just the latest in a series of challenges for JCPenney.

According to an April report from The Wall Street Journal, the company is in advanced bankruptcy talks, for a debtor-in-possession loan that would continue to fund its operations during bankruptcy proceedings. The loan package, according to the report, could be worth about $800 million to $1 billion — some of which might include existing debt. However, sources close to the situation told FN on April 24 that the company was exploring multiple financial options, and that bankruptcy was not necessarily imminent.

Prior to the pandemic, JCPenney had been struggling for several quarters with declining sales, executive leadership changes and increased digital competition. These issues, coupled with a hefty debt load of $4 billion, have spooked investors, sending the company’s stock below $1 — on Tuesday morning, shares were trading at just 24 cents — and putting it at risk of delisting from the New York Stock Exchange.

But the pandemic has created yet another setback for the department store chain. In mid-March, JCPenney shut its fleet of about 850 stores due to government-mandated closures. Two weeks later, the retailer announced that it would furlough scores of workers and take additional actions to maintain its financial flexibility. It deferred capital spend and tapped $1.25 billion from its $2.35 billion revolving credit line, as well as cut expenditures and paused hiring efforts. It said it had also suspended merit bonuses for the year and was “evaluating other financial options.”

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