Sephora is hitting back against business partner J.C. Penney Co.
After JCPenney filed a temporary restraining order yesterday — accusing Sephora of attempting to exit a longterm contract early — the makeup giant responded with an emergency motion to dissolve.
In JCPenney’s filing, the department store said Sephora had threatened not to reopen its 600-plus shop-in-shops within JCP stores in order to gain “negotiating leverage.” JCPenney said Sephora hopes to adjust their longterm contract — which began in 2009 and continues for “several years” — to instead end in April 2021.
However, Sephora claims this is inaccurate.
“No part of JCP’s fanciful, one-sided narrative was or is true,” the company wrote yesterday in its motion to dissolve. “In fact, JCP had and has no valid basis to show likelihood of success on the merits, irreparable harm, or the other requisite elements for a [temporary restraining order].”
Sephora claims that both parties had been involved in “good faith wind-down discussions” for several weeks amid reports of a looming JCPenney bankruptcy filing. If JCPenney were to file for bankruptcy, it would allow Sephora to pull out of the longterm deal “through a prolonged wind-down process called ‘disengagement,'” the motion to dissolve said, adding that the retailer would have “about four months after termination to keep operating [Sephora shop-in-shops].”
Brooke Buchanan, SVP of communications at JCPenney said in a statement that Sephora and JCPenney “remain committed to working together to drive sustainable, profitable growth, as [Sephora inside JCPenney] continues to be a beauty destination that serves millions of customers each year.”
According to an April report from The Wall Street Journal, JCPenney 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.
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 a portion of its workforce — including Sephora shop-in-shop workers — and take additional actions to maintain its financial flexibility. JCPenney 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. The chain said it had also suspended merit bonuses for the year and was “evaluating other financial options.”
While the pandemic has amplified JCPenney’s struggles, the company has been challenged for several quarters amid 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 and putting it at risk of delisting from the New York Stock Exchange. In Tuesday afternoon trading, shares were valued at just 22 cents.