Penney stock plunges on share sale, lower cash forecast
(Reuters) - J.C. Penney Co Inc's decision to shore up its cash reserves by issuing almost $1 billion in new shares sent its stock tumbling more than 13 percent Friday.
Earlier in the day, the struggling U.S. department store chain had cut its forecast of year-end cash reserves, suggesting that it is burning through money faster than expected.
Penney said the 84 million shares in the offering had priced at $9.65 each. Underwriters have the option to buy another 12.6 million shares.
The board decided Thursday afternoon to sell shares after discussing in recent weeks various options to raise cash. As of September 6, Penney had total debt of $5.82 billion, according to the stock offering prospectus, making it difficult to raise new money through debt.
"We could not risk losing the confidence of our Associates or our supplier partners, both of whom are paramount to our long-term success," Chief Executive Myron Ullman said in a note sent to all store employees on Friday and obtained by Reuters.
Penney spokeswoman Kristin Hays said the company was concerned that "shares could not handle much more pressure" if the company wanted to be able to sell new stock at some point.
The company has been struggling to improve sales after a failed attempt by Ullman's predecessor Ron Johnson to take the store more up-market sent sales down 25 percent in 2012.
On Friday, in their first session since the sale was announced, shares closed at $9.05, down from a February 2007 high of $87.18. About 35 percent of Penney shares are held short by investors betting on its decline, making them very volatile.
Penney said in the prospectus it would have about $1.3 billion in cash by the end of the year. In August, it had forecast $1.5 billion.
"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.
UBS' Binetti said the pre-holiday capital-raising, along with cautious comments from other retailers, increased concerns that near-term trends were not improving as anticipated.
So far some financing companies, known as factors, are not changing terms on the short-term loans they provide Penney suppliers.
Michael Stanley, the managing director at Rosenthal & Rosenthal, a large factor, said his firm has kept approving orders to Penney.
"We feel they have enough liquidity, especially with this share sale," Stanley said.
A TURBULENT WEEK
Penney's offering confirmed an exclusive Reuters report on Wednesday that the company aimed to raise as much as $1 billion in new equity to build its cash reserves.
Penney on Thursday denied a CNBC report that said Ullman had told investors there was no need to raise more money before the end of the fourth quarter, which ends in early February.
The company's shares had climbed on the CNBC report.
Earlier this year, Penney had a $2.25 billion loan arranged by Goldman Sachs, which is also the sole book-running manager for the stock offering.
Goldman said in a research note this week that poor business fundamentals, the need to rebuild inventory of goods popular with long-time customers and the weak performance of its home goods department would likely put pressure on Penney's liquidity.
Penney's shares have been on a wild ride in the past three days: plunging on the Goldman research, and declining further on the Reuters report about a capital raising, before recovering some of those losses on the company statement about trading conditions and the CNBC report. The shares fell again on the share sale announcement on Thursday, and continued their slide on Friday.