J.C. Penney’s second quarter earnings report revealed a widening quarterly loss, though category sales have remained stable year over year.
The bankrupt retailer reported a net loss of $398 million, or $1.23 a share, versus a net loss of $48 million, or 15 cents a year ago, according to a Securities and Exchange Commission regulatory filing Thursday. Total revenues were down 44.3 percent to $1.46 billion from $2.62 billion, in part due to coronavirus closures. Revenues included a 44.6 percent decline in net sales to $1.39 billion from $2.51 billion.
Penney’s said it reopened 11 stores in April, 464 doors in May, and 366 locations in June, though the majority continue to operate with limited hours and staffing. Seven stores have closed, while JCP is in the process of closing 146 doors and expects the majority of the 153 locations to close by the end of October and the balance in November. In addition, as of Aug. 31, 18,000 associates remain on furlough.
By category, the percentage of sales as a component of overall sales have remained steady. Women’s apparel represented 19 percent of total sales, slightly lower than the 22 percent reported a year ago, or $271 million in the quarter ended Aug. 1. Men’s apparel and accessories held steady at 21 percent, or $289 million. Women’s accessories, including its licensed Sephora beauty business, stayed the course at 16 percent, or $219 million. Footwear and handbags remained the same, too, at 11 percent, or $147 million.
Among the categories that saw slight changes were home, now 12 percent instead of 10 percent from a year ago, or $172 million in the quarter just ended. Kids, including toys, declined 1 percent to 8 percent, or $108 million. Jewelry gained 1 percent to 6 percent of total sales, or $90 million, while its services and other grouping also rose 1 percent to 7 percent, or $94 million.
In the quarterly filing, the retailer reported total pre-petition liabilities of $5.1 billion, including $3.3 billion in debt, $942,000 owed on leases, $503 million owed to vendors for merchandise, among other items. The liabilities are presented as item subject to compromise, meaning adjustments to the total owed are a possibility depending on negotiations with creditors, such as concessions from landlords, that could result in settlements for different amounts or otherwise allowed by the bankruptcy court.
On a post-petition basis, reorganization costs so far have totaled $108 million. That total includes, among other items, advisory fees of $64 million and debtor-in-possession financing fees of $50 million. The company also reported a benefit of $66 million from early lease terminations.
Penney’s filed its voluntary Chapter 11 petition on May 15. The company recently inked a non-binding letter of intent with Simon Property Group and Brookfield Property Partners, its two largest landlords, to sell to them the operating company called Opco. About 161 company-owned locations will be transferred to a real estate investment trust, with distribution centers moved to another REIT, and ownership of both REITs go to its first-lien lenders under a Propco arrangement.
The Propco and Opco separation allows for ownership of key real estate to remain with the first-lien lenders, but a court auction could surface a bidder that outmaneuvers the Simon-Brookfield tie-up. Or someone could enter the fray and bid for the entire Propco-Opco operation since the total combined set-up is being described as the stalking-horse bid for the auction, although that seems unlikely at this point. The value of the total transaction is estimated at $1.75 billion.
The deal with Simon and Brookfield is significant because if no one else comes in to make a bid, the two will take over the operating unit, ensuring that the retailer won’t have to worry about liquidating.