JCPenney Gets Downgraded Again — Can the Retailer Stay Afloat?

Samantha McDonald

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JCPenney’s corporate credit rating has been downgraded again.

According to a report published by Retail Dive, financial services firm S&P Global cut the struggling department store chain from a CCC+ rating to CCC — indicating an extremely high-risk investment — as consistent sales declines continue to plague the retailer. It had already downgraded the retailer to CCC+ in March.

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In the second quarter, JCPenney managed to reduce its losses from $101 million the previous year to $48 million, or 15 cents per share, but revenues declined more than expected, dropping 7.4% to $2.62 billion. (Analysts had forecasted sales of $2.69 billion.) Months of slumping earnings reports have pushed its stock below $1, putting it at risk of delisting from the New York Stock Exchange.

In its analysis, S&P experts wrote that the Plano, Texas-based company’s capital structure “appears unsustainable over the long term,” particularly amid a challenging retail environment that has seen a large swath of anchor companies shutter their doors as well as a broader shift to e-commerce.

“It is not clear that JCPenney will be able to achieve sustained material benefits from its plan to transform the company into a differentiated and desirable customer destination in the next year given its competitive headwinds,” the report read. (FN has reached out to the firm for more information.)

The downgrade also comes a month after JCPenney’s addition to Fitch Ratings’ “loans of concern” list, with the credit rating agency noting that the chain was at a high risk of defaulting on a $1.57 billion loan balance. Filings with the U.S. Securities and Exchange Commission put JCPenney’s debt at roughly $4 billion.

In an attempt to revive its business, the company has hired advisors to explore debt restructuring options to buy itself more time for a turnaround. After taking the helm in October, CEO Jill Soltau has made a concerted push toward JCPenney’s retail makeover, closing a few dozen underperforming stores and hiring new talent at the start of the year. It also recently announced a partnership with ThredUp, with 30 of its stores soon offering a selection of the online consignment giant’s secondhand apparel and accessories to be curated weekly.

Separately, JCPenney disclosed two weeks ago that its chairman bought 1 million shares of the company at 59 cents each, raising his total owned shares to 1,352,128. Last week, Soltau also purchased 500,000 shares for $293,950.

As of 11:00 a.m. ET on Tuesday, JCPenney’s stock was down 5.8% to 70 cents.

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