Penney plans public stock offering to raise funds
Thursday, September 26, 2013
PLANO, Texas (AP) — J.C. Penney Co. plans to sell up to 96.6 million shares of common stock in a public offering, evidence the chain is looking to shore up its cash reserves ahead of what is expected to be a fiercely competitive holiday shopping season.
The beleaguered chain says that it will be using the proceeds from the offering for general corporate purposes.
In a statement released after the regular markets closed, the Plano, Texas-based company said that it plans to sell 84 million shares of common stock. It is also granting the underwriter, Goldman Sachs, a 30-day option to purchase up to 12.6 million more shares in case of excess demand.
Based on Thursday’s closing price of $10.42, the company would raise proceeds of more than $1 billion before expenses.
Shares fell more than 5 percent in after-markets trading after the announcement.
Separately, Penney said in a filing with the Securities and Exchange Commission that its senior vice president and controller Mark R. Sweeney left the company as of Friday.
The department store chain said Dennis P. Miller, senior vice president, finance, will serve as the interim principal accounting officer.
The development is the latest dose of bad news in a particularly rocky past few days for Penney, which is trying to recover from a failed turnaround attempt spearheaded by its former CEO Ron Johnson that led to disastrous results.
The retailer, which had seen its shares in a free fall in recent days, earlier on Thursday sought to appease investors who were worried about the company’s cash liquidity and sales following a gloomy analyst report on the company.
The department store chain released a statement Thursday morning that it was pleased with its turnaround efforts. CNBC also quoted Penney’s CEO Mike Ullman as saying that he doesn’t see conditions this year where “we’d need to raise liquidity.”
The statements came after Penney shares fell near 13-year lows on Wednesday to close at $10.12.
Wednesday’s free fall came a day after a gloomy analysis by Goldman Sachs, which began coverage of Penney’s unsecured debt with an “Underperform” rating. In the report, Goldman Sachs analyst Kristen McDuffy wrote she fears that Penney will be forced to tap into the debt markets for more cash. McDuffy also said that she believes that the current quarter as well as the fourth will be difficult, with business likely showing a slower-than-expected improvement.
Reports have been swirling since late last week that Penney is looking to raise more money, possibly through a combination of debt and equity. That comes after Penney arranged a $2.25 billion loan this past spring with Goldman Sachs.
The department store reiterated that it expects to see revenue at stores open at least a year rise toward the end of the third quarter and throughout the fourth quarter. The figure is considered an indicator of a retailer’s health.
Penney said that it’s seeing increased buying online and in its stores mostly because it has key items back in stock and sizes that shoppers are looking for. It also cited greater predictability in its performance across many areas.
Belus Capital Advisors analyst Brian Sozzi noted that Penney’s moves to sell common stock indicates that the cash burn rate was worse than was previously thought for the back-to-school shopping season. He noted that he’s not encouraged by the fact that Penney could see positive sales for fourth quarter since he believes that Penney had to heavily discount to get the business.
Penney’s board ousted Johnson in April after 17 months on the job and rehired Ullman, who had been CEO of the retailer from 2004 to late 2011. Under Ullman, Penney is bringing back sales events that had been ditched and restoring basic merchandise like khakis that were eliminated by Johnson
Shares fell 57 cents in after-hours trading after closing during regular trading up nearly 3 percent, or 30 cents, to $10.42. Overall, shares have lost 76 percent of their value since early February 2012.
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