JCPenney Net Income Fell 65%. Are Money Troubles Ahead?
JCPenney boasted about having “one of the lowest debt leverage ratios in the retail industry,” according to a filing by Penney Intermediate Holdings LLC (PIH) reporting the 667-store chain’s second-quarter earnings.
Despite liquidity at $1.7 billion and under $500 million in long-term debt, according to PIH’s Securities and Exchange Commission filing for financials for the three months through July 29, JCPenney recently told international vendors that it will extend payment terms to net 90 days from 60, while domestic vendors will be paid in 60 days instead of 45, “in line with industry norms.” The departure from retail’s typical 30-day terms, first reported by WarrensReport, suggests that JCPenney could have money troubles ahead.
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For one, quarterly sales and income showed significant weakness at the formerly bankrupt retailer.
Sales fell 10.1 percent to $1.61 billion from $1.79 billion, while net income was down 65.4 percent to $36 million from $104 million a year earlier. On a six-month basis, the results were even worse for income. Net income was just $19 million, down 90.2 percent from $193 million a year ago. Net sales tumbled 10.0 percent to $3.1 billion from $3.44 billion a year ago.
“The company continues to prioritize maintaining a very healthy balance sheet with significant liquidity,” JCPenney said in the financial report.
JCPenney is using $92 million in operating cash flow on an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) basis to fund $76 million of capital investments, including store and omnichannel overhauls.
The retailer is spending more than $1 billion through 2025 on store remodels, supply chain network improvements and e-commerce enhancements. However, a UBS retail analyst recently warned of a “coming slowdown” in soft goods spending, meaning JCPenney stands to suffer if consumers tighten up the pursestrings.
Last month, JCPenney CEO Marc Rosen said the retailer is on “strong financial footing and is steadily increasing relevance and frequency with our core customers.”
The company will bring back its classic logo and invest in digital, prime time TV, social, in-store and print media campaigns to raise customer awareness.
The federal filing noted macro pressures on consumer discretionary spending. Website enhancements helped perk up digital sales, despite the decline in total sales. JCPenney said customers are visiting stores more often.
Merchandise gross profit rates improved 70 basis points for the quarter, with kids and home showing the biggest improvement. Customers are flocking to JCPenney private labels, such as St. John’s Bay and Stafford. JCPenney can’t afford any mistakes while sales are on the decline. It will need to be disciplined with inventory management, promotions and clearance. The filing said the company will aim to cut back on discretionary spending.
