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Penney’s Bled $546M in Q1 But Inches Toward Bankruptcy End Zone

J. C. Penney is one step closer to emerging from bankruptcy as a standalone company.

On Monday, the mass-market retailer said it has tentatively forged an agreement with first-lien lenders on a workable business plan, according to a Securities and Exchange Commission filing. However, Penney’s must meet certain conditions by July 31, the new deadline replacing July 14 as the date by which the merchant and its lenders must hammer out any remaining details, which the filing did not disclose. Assuming Penney’s has its ducks in a row by the end of the month, it then has until Aug. 30 to secure binding commitments for exit financing.

And if Penney’s passes those milestones with flying colors, it’s likely it will be able to conclude Chapter 11 proceedings, filed on May 15, by early autumn. But if it fails, Penny’s will shut down altogether or end up for sale. Buyers said to be waiting in the wings include brand management firm Authentic Brands Group and landlords Simon Property Group and Brookfield Asset Management.

While retail consultants might debate whether there is even a need for Penney’s, many in the financial sphere believe an exit would be good news for apparel vendors that need another vehicle through which to sell their goods. And with the company operating under a reorganized balance sheet, as well as a new credit facility, there won’t be any concern over whether or not the retailer can pay its bills.

But an exit doesn’t necessarily mean Penney’s is completely out of the woods. An exit would give CEO Jill Soltau, a seasoned and well-respected retail executive in the retail industry, an opportunity for her and her team to execute on a turnaround strategy that she claims was showing promise before the coronavirus outbreak crash-landed in the U.S. And now a resurging virus is threatening fresh restrictions that could crimp the nation’s economic recovery.

Penney’s is in the process of closing about 150 stores, and just announced last week plans to cut 1,000 jobs.

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In a Tuesday SEC report for the first quarter ended May 2, Penney’s reported a wider net loss of $546 million, or $1.69 a diluted share, versus a net loss of $154 million, or 48 cents, in the year-ago period. Total revenues fell 53.2 percent to $1.20 billion from $2.56 billion, which includes a decline of 55.6 percent in net sales to $1.08 billion from $2.44 billion. The balance of revenue was from credit income, or revenue from its private-label credit card program.

Women’s apparel sales drove 20 percent of total revenue in the first quarter, while men’s apparel and accessories made up 19 percent, women’s accessories including Sephora accounted for 16 percent, and home represented 13 percent. Footwear and handbags added 11 percent, and kids, including toys contributed 8 percent, while jewelry sales came in at 7 percent, and services and other as a category totaled 6 percent. The percentage by category was roughly the same for the year-ago figures, though services naturally saw a sizeable drop given the prolonged store closures.