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Struggling department store operator JC Penney expects to raise up to $932mn from a share sale, leaving it with about $2.2bn in cash at the end of the year. |
JC Penney, whose shares have been hit by concerns it doesn’t have enough cash to fund operations going into the holiday shopping season, said yesterday that without the offering it would have about $1.3bn in cash by the end of the year — about $200mn less than it had forecast on August 19.
That suggested the company was burning through cash faster than expected, an issue highlighted by several analysts who have a “sell” rating on the stock. Penney said yesterday it would sell 84mn shares in a public offering at $9.65 per share. The retailer’s stock was down 7.4% at $9.65 before the bell.
The share sale will increase Penney’s shares outstanding by 38%, excluding the 12.6mn additional shares the underwriters have the option to buy.
“While an equity raise improves (near-term) liquidity, we remain concerned that JCP will continue to burn cash in ‘14 and beyond,” UBS analyst Michael Binetti, who has a “sell” rating on the stock, wrote in a note.
Binetti said the pre-holiday capital-raising, along with cautious comments from Penney’s mall peers, increased concerns that near-term trends were not improving as anticipated.
JP Morgan analyst Matthew Boss said the offering would dilute earnings per share by 28%.
Penney, whose shares have lost almost half of their value this year, announced the offering after the markets closed on Thursday but did not disclose the pricing.
The company, which has a market value of just over $2bn, has been hit by collapsing sales after a failed attempt in 2012 to go up-market. Sales fell 25% last year, and have continued to fall this fiscal year.
Penney’s offering confirmed an exclusive Reuters report on Wednesday that the company was looking to raise as much as $1bn in new equity to build its cash reserves.
Penney spokeswoman Kristin Hays denied a CNBC report on Thursday that said CEO Mike Ullman had told investors there was no need to raise more money before the end of the fourth quarter, which ends in early February.
Hays said on Thursday the company had decided to do the share offering now because of all the negative headlines this week about its financial health. The capital-raising is in response to uncertainty and is aimed at reassuring suppliers and employees, she said.
“This is not because of panic, it’s to be prudent,” Hays said. She also noted that Penney had opted for a stock issue because it has $5bn in debt on its books.
Earlier this year, Penney got a $2.25bn loan arranged by Goldman Sachs, which is also the sole book-running manager for the stock offering.