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JC Penney Fudged Numbers to Improve Cash Position Says Analyst

Morgan Stanley’s analyst Kimberly Greenberger explained the situation to the Wall Street Journal:

“Typically, inventory and payables move together, suggesting JC Penney is delaying payments. Management indicated it is changing vendor payment terms to be more in line with industry norms. Payables now represent 50% of inventory, much higher than peer Macy’s M +1.53% 30%. In fact, had JC Penney’s payables balance declined in line with inventory, payables would have represented 35% of inventory, much closer to its peer, but cash would have been $344 million lower.”

Adjusting for this, the firm estimates JC Penney’s year-end cash balance should be something like $586 million – almost 50% lower than the $1 billion estimate issued in the spring.

Greenberg says, “Inventory levels are expected to build over the next six to nine months, further straining cash levels in our view. Our analysis suggests JC Penney will deplete cash stores in the third quarter, likely necessitating a credit line draw.”