J.C. Penney Company, Inc (NYSE:JCP) not scrimping for every penny?
The department store chain, J.C. Penney Company, Inc (NYSE:JCP) has been making extensive efforts to rebound from the worst sales it has experienced in over 2 decades. Yesterday, the New York Post had reported that CIT, the commercial lender had discontinued supporting the deliveries from small manufacturers to the company’s stores. The newspaper had not revealed the source. Post this news, JCP shares dropped 0.1% to $14.58 at close of yesterday’s trading session.
No truth in story
Today, the company announced that this report had no truth in it. In a statement, the company said that contrary to what had been reported by the newspaper, CIT is still factoring and supporting deliveries from the company’s suppliers. The statement also said that the company continues to have plenty of liquidity. It is projecting to close this quarter with cash of around $1.5B on its balance sheet.
Firms like CIT provide manufacturers with cash on a short-term basis. This cash can be used to manufacture goods for retailers. In return, they are paid a certain fee that is based on a % of the entire order. If CIT stops funding JCP’s suppliers, this will prompt other lenders to follow in its footsteps.
In effect this would mean that JCP will have to pay for the goods in hard cash when they are delivered. Not more than 10% of the company’s goods are funded by various commercial lenders. Of these, CIT is the major lender and if for instance, it had to pay upfront for those goods, it would amount to around $300M. Today, JC Penney said that currently, CIT funded merchandise represents less than 4% of the total inventory for the year. The company has been struggling to do things differently since Mike Ullman replaced Johnson in April. JCP is restructuring its pricing strategy and reintroducing traditional coupons and sales events in a bid to retrace its steps to profitability.