September 27, 2013 / 10:33 AM / 5 years ago

Penney to raise up to $932 million in share sale, lowers cash forecast

(Reuters) - J.C. Penney Co Inc (JCP.N) on Friday cut its forecast of year-end cash reserves as it expects to raise up to $932 million in a share sale, suggesting that the retailer is burning through cash faster than expected.

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

The retailer, whose shares have tumbled in the last year as it struggled to improve sales, said 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.

Penney said shares had priced at $9.65 each. Penney offered 84 million shares, which will severely dilute current shareholders.

The stock fell 11 percent to $9.30 in afternoon trading. The share sale would increase Penney’s shares outstanding by 38 percent, excluding the 12.6 million additional shares the underwriters have the option to buy.

UBS’ 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.

So far some financing companies, known as factors, are not changing terms on the 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.


The company, which has a market value of just over $2 billion, has been hit by collapsing sales after a failed attempt in 2012 to go up-market. Sales fell 25 percent 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 $1 billion in new equity to build its cash reserves.

Penney spokeswoman Kristin Hays denied a CNBC report on Thursday that said Chief Executive 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.

The company’s shares climbed on the CNBC report. Hays said 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.

Penney had total debt of $5.82 billion as of September 6, the prospectus for the stock offering showed.

Earlier this year, Penney got a $2.25 billion loan arranged by Goldman Sachs (GS.N), 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 two 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.

Reporting by Phil Wahba, Michael Erman and Olivia Oran in New York and Siddharth Cavale in Bangalore; Editing by Ted Kerr and Grant McCool

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