Rough Week for JC Penney, Shares Erase 30 Percent

Andrew Klips  |

At the rate things are going for JC Penney Co. Inc. (JCP) , the iconic JCP acronym may stand for “Just Costs a Penny.”  The embattled retailer has been the topic of debate for months on end about whether it can become a turnaround story or a bankruptcy case.  Most have agreed that the company isn’t heading to the courts, but it’s fair to say that pessimism has dominated sentiment about the company’s future.

The bleeding had already started last week, but the stock was still holding a support level around $12.50.  The wheels starting coming off on Tuesday when the support level was broken and put options on JCP skyrocketed more than 200 percent above average volume to more than 70,000 puts being purchased.

The skid accelerated for the share price on Wednesday when Goldman Sachs issued an underperform rating on the stock and challenged Penney’s liquidity position.  In fact, Goldman titled its report, “Initiate on JCP with Underperform:  Looking for cash in the name.”  Goldman analyst Kristen McDuffy said that she believes JCP will bring in new capital in the form of additional debt, not equity, which would be a negative catalyst for creditors.  The stock plunged 15 percent following the report.

More negative sentiment came on Thursday when Wells Fargo & Co. essentially said “I second that” to Goldman’s report, reaffirming their own underperform rating on JCP.  Citigroup hit JCP with a sell rating (essentially the same meaning as an “underperform” rating) and put a $7 price target on JCP shares. Shares initially started running south in the morning, but when CNBC reported that JCP chief executive Mike Ullman said at an investor meeting the day earlier that the company had no plans to raise money anytime soon, shares reversed and closed ahead on the day.

Ahhh, but what a difference a couple days can make.  The company delivered its own final dagger on Friday when it announced a share offering to raise as much as $932 million and slashed its 2013 liquidity forecast.  Somewhat ironically, Goldman Sachs Group Inc. is managing the sale of 84 million shares at $9.65.  GS will also have an option to another 12.6 million shares within 30 days of the offering.  JCP estimated that its fiscal year would end with the company having approximately $1.3 billion in liquidity, down from its estimate about a month ago of $1.5 billion.

Some of the near-term concerns with JCP have been about shaky vendor confidence and the outlook for retailers this holiday season.  The capital raise likely will put the company on better ground with vendors, but Wall Street did not like the offering and it raises additional concerns about how well the current quarter is going heading into what could be a volatile holiday season.   That, of course, goes without mentioning feeling a bit fleeced by comments from the management team.

Shares sunk another 13.2 percent on Friday, closing at $9.05, the lowest level since December 2000.  On the week, shares jettisoned 30.2 percent.  So far in 2013, shares have 55 fallen percent.

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