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JCP Denies Rumors Factors Will Cut Shipments

J.C Penney has moved to deny rumors that factoring company CIT will be stopping vendor shipments on concerns about the retailer’s financial stability.

JCP shares fell 10.2 percent Wednesday following rumors about its rapid use of cash. Shares were down to $14.60 on the NYSE, and fell a further half point in after-hours trading.

The drop centered on rumors that factoring firm CIT had halted approval on vendors shipping to JCP, because of creditworthiness issues.

Sources say that CIT has asked some clients to provide additional information about their orders before making decisions on orders scheduled for January. Sources indicate that no approvals have yet been halted for some, likely smaller, vendors.

A supporting rumor stated that CIT has been informed by the retailer that their Q2 earnings report – due on August 15th – will not be good.

Expectations have been low for the report, despite the return of CEO Mike Ullman. After the ouster of Ron Johnson, Ullman made a number of changes to the firm’s discounting strategy and offerings, but the changes won’t be reflected in the earnings report until Q3 due to lead times and other factors.

CIT is estimated to have exposure of between $180 million and $210 million to Penney’s client accounts, and is now moving to minimize its risk. At this point, it is rumored that the firm is reaching the limit of risk cap for the retailer. Rather than stopping shipments, it is more likely that CIT will add a surcharge to clients who are shipping to JCP.

Other factors involved are likely to wait until after Q2 results are posted before approving shipments. The results will highlight the cash situation at JCP and allow concerned parties to estimate the extent of future losses.

JCP is also continuing its legal battle with Macy’s and Martha Stewart, with closing arguments being heard today in the New York Supreme Court by Judge Jeffrey Oing. JCP owns a range of goods that were produced in conjunction with Martha Stewart Omnimedia, and has hinged the redesign of its vital home textiles section on the goods. If it loses the case, they will not be allowed to sell them.