J. C. Penney lost $546 million in the first quarter as the coronavirus pandemic squeezed the distressed chain past its breaking point.
For the three-month period ended May 2, net sales fell 55.6 percent to $1.08 billion from $2.44 billion, the Texas-based retailer said in a Securities and Exchange Commission filing Tuesday. Including credit and other income, total revenues fell 53.2 percent to $1.20 billion from $2.56 billion. The impact of prolonged store closures that began in March widened the chain’s loss to $546 million, or $1.69 a diluted share, versus the loss of $154 million, or 48 cents, in the same year-ago quarter.
Penney’s has $8.22 billion in assets, including $3.34 billion in property and equipment and $934 million in operating lease assets, according to the document. But a reported $2.22 billion in merchandise inventory might not reflect the true value of trend-inspired fashion goods locked up and growing stale inside scores of closed stores.
And in the consolidated balance sheet showing assets and losses, long-term debt was wiped out for the liabilities portion, presumably because the company is in bankruptcy—even though the retailer didn’t file its Chapter 11 petition until May 15, two weeks after the end of the first quarter.
Penney’s must reach an agreement with first-lien lenders on a business plan by July 14, or put itself up for sale. The company began reopening stores last month but is planning to close at least 242 locations to bring its store network down to 604. If Penney’s can emerge from bankruptcy and skirt a sale, the retailer plans to split into two firms. One would be a real estate investment trust holding certain real estate assets of Penney’s, and the other would be the publicly listed retail operating entity.
But Penney’s could also find itself on the selling block. It’s already had a few firms kicking the tires, and entertained some discussions in the event lender talks don’t work out.
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The frontrunner seems to be a possible joint venture between brand management firm Authentic Brands Group and two mall operators, Simon Property Group and Brookfield Asset Capital. Both are also landlords for many of the retailer’s store locations, and are said to be keen on keeping Penney’s open as their anchor tenant due to co-tenancy clauses giving other occupants the right to bail if certain traffic-driving businesses depart.
Owning Penney’s would also give the mall operators final say on what happens with their respective malls’ future, from when to close a store to how to redevelop a site. And because all three have worked together in two other similar ventures—Aéropostale and Forever 21, both acquired from bankruptcy—most observers believe the trio has the mojo to make an Penney’s acquisition work in their favor.