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JCPenney share price plummets ahead of results; NYSE delisting next?

US department store chain JCPenney [JCP] has been warned by New York Stock Exchange regulators that it’s at risk of being delisted. The company now has six months to increase its stock price above one dollar to avoid a delisting. 

The news follows Barneys’s filing for chapter 11 bankruptcy protection on 6 August and the announcement that 15 of its 22 US stores will be closing. There has been a visible fallout among its department store peers – including Kohl’s Corporation [KSS], Nordstrom [JWN] and Macy’s [M] – in response, with share prices performing relatively flat. 

JCPenney’s creditors have been pushing for discussions around a possible debt swap geared towards giving the new managers of the retailer time to turn things around. They would look to rework a portion of the over $4bn debt ahead of maturities in an effort to avoid bankruptcy. Currently, the cost for investors to protect against debt default in JCPenney shares over the allowed six-month period dropped on 7 August, decreasing by 2% to 15.7%.

 

 

Can JCPenney take the hit? 

Speaking to JCPenney investors, who chose to remain anonymous, Bloomberg has been told the department store has enough cash in hand, with $1.75bn of liquidity available and “no meaningful bond and term-loan maturities until 2023.” They added that the retailer has been working with restructuring advisers from Kirkland & Ellis and investment bank Lazard to improve balance sheets ahead of key maturity dates, although the advisers and investment bank declined to comment on this. 

In a statement, JCPenney said: “The company intends to pursue measures to cut the share price non-compliance, including through a reverse stock split of the company’s common stock, subject to stockholder approval, no later than at its next annual meeting of stockholders, if such action is necessary to cure the share price non-compliance.”

 

Brick-and-mortar retail continues to struggle

Barneys’s CEO Daniella Vitale said in a statement addressing its bankruptcy filing: “Like many in our industry, Barneys New York’s financial position has been dramatically impacted by the challenging retail environment and rent structures that are excessively high relative to market demand.”

With the rise in ecommerce and increasingly challenging rent structures, the pressures placed on the traditional high street continue to mount. Brick-and-mortar retail has seen some steady declines in the market. Toys “R” Us, Sears Holdings Corp and now Barneys have all been directly impacted, while JCPenney has seen its year-on-year quarterly revenue decrease by an average of 4.3%.

“Like many in our industry, Barneys New York’s financial position has been dramatically impacted by the challenging retail environment and rent structures that are excessively high relative to market demand” - Barneys’s CEO Daniella Vitale

 

The Consumer Discretionary sector – consisting of consumer services, automobiles and components, consumer durables and apparel and retailing – is currently trending 1.58% above its 5-day moving average, and offers a marginal 0.60% 1-year annual return. However, when looking exclusively at retail assets, S&P’s Retail Select Industry Index shows a wholly negative story, offering -25.9% 1-year annual returns. JCPenney, meanwhile, is down -12.3% at $0.57 from 6-14 August – significantly underperforming the industry and in line with considerable dips from peers. Comparatively, competitors like Macy’s are trading down -19.4%, Kohl’s at -10.6% and Nordstrom at 14.8%.

Year-to-date JCPenney has seen a rapid decline of -50.0%, and a huge 69% of its YTD high of 1.85, hit in mid-March.

Perhaps even more telling is JCPenney’s (TTM) return on assets and equity, which outperform key industry peers and come in at -0.07% and -28.2% respectively. Macy’s is returning (TTM) 4.45% on assets and 18.20% on equity, whereas Kohl’s Corporation is at 6.35% on assets and 14.6% on equity, as of 15 August.

 

  JC Penny Kohl's Macy's
Market cap $180.58m $7.309bn $5.189bn
EPS (TTM) -1.0450 4.79 3.55
Return on Equity (TTM) -28.18% 14.60% 18.20%
Quarterly Revenue Growth (YoY) -4.30% -2.90% -0.40%

JC Penny, Kohl's & Macy's share price vitals, Yahoo Finance, 15 August 2019

 

However, Walter Loeb of management consulting and strategic advisory firm Loeb Associates Inc. offered some hope to investors, suggesting the company should still avoid bankruptcy in an article for Forbes: “I think the management moves have strengthened the company and will have positive sales results this fall. I think [second quarter] results will be disappointing due to all the turmoil still underway.”

JCPenney will announce its annual results today.

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