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Breaking News: Post Hasty Stock Sale, JCP’s Credibility Battered

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A series of hastily made and strategically misguided decisions has left JC Penney’s (JCP) stock battered. It has also left its shareholders disillusioned; after reassurances that there was no plan to raise capital, they now find that their holdings have been considerably diluted.

JCP issued eighty-four million new shares and 256 million shares changed hands overall, devaluing current investor holdings by approximately 30 percent. At the close of business Friday, JCP’s stock had plunged to $9.05, a thirteen year low.

And the damage done is not merely financial. After indignantly insisting that it was flush with cash and had no intention to sell more shares, the sudden maneuver distempered markets worldwide and left its shareholders feeling betrayed. David Glick, retail analyst at Buckingham Research Group, said, “The underlying reasons for this sudden need for expensive capital, the damage to JCP’s credibility, and the more challenging than expected consumer environment all pose threats to the pace of JCP’s recovery.”

CEO Mike Ullman also repeatedly disavowed rumors that the retail giant was poised to increase its capital reserves. At a recent investor meeting he said, “As we said on the second quarter call, the company has sufficient liquidity to end the year.” Officially, before the offering, Ullman had said he expected the company to end the year with $1.3 billion on hand.

Paul Lejuez, analyst at Well Fargo, said, “Since the company had publicly stated it did not need any additional financing as recently as its second quarter earnings call, this move seems to reflect a new level of concern within the company and likely amongst the vendor community.”

Before the offering was officially announced, JCP even issued a press release responding to criticism that its turnaround strategy was failing. In full, it read:

“In response to inquiries, J.C. Penney said today that it is pleased with its progress thus far in the Company’s turnaround efforts and the traction its initiatives are starting to  achieve.  Moreover, the Company said it is starting to see greater predictability in its performance across many areas.

“The Company continues to be encouraged by improvements in purchase  conversion both in store and on jcp.com, primarily due to being back in stock in key items and sizes the customer expects to find at J.C. Penney. Overall sales on jcp.com continue to trend double digits ahead of last year.

“The Company still anticipates it will experience positive comparable store sales trends coming out of the third quarter and throughout the fourth quarter of 2013.”

With the crucial holiday shopping season approaching, and forecasts almost universally grim, JCP might need the infusion of cash to weather tougher times to come.

 

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