Penney stock plunges on share sale, lower cash forecast

Sun Sep 29, 2013 3:30am EDT
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By Phil Wahba and Olivia Oran

(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.   Continued...

Customers ride the escalator at a J.C. Penney store in New York August 14, 2013. REUTERS/Brendan McDermid