JC Penney Vendors Face Challenges with a Faltering Customer
Upcoming SlideShare
Loading in...5
×
 

JC Penney Vendors Face Challenges with a Faltering Customer

on

  • 862 views

 

Statistics

Views

Total Views
862
Views on SlideShare
802
Embed Views
60

Actions

Likes
0
Downloads
0
Comments
0

3 Embeds 60

https://twitter.com 48
http://www.linkedin.com 8
https://www.linkedin.com 4

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

JC Penney Vendors Face Challenges with a Faltering Customer JC Penney Vendors Face Challenges with a Faltering Customer Presentation Transcript

  • JC Penney Vendors Face Challenges with a Faltering Customer Margaret Bogenrief & David Johnson October 3, 2013 1
  • Overview • These are challenging times for vendors supplying JC Penney. The storied retailer has struggled in recent years, with shifting strategies, wrenching leadership changes, and a rapidly declining business and customer base. • The harsh reality is that retail turnarounds are fraught with special challenges, not least changes to the bankruptcy code in 2005 that have made large retail bankruptcies little more than a route to liquidation. • JC Penney’s suppliers, as well as their key stakeholders, should look past the 2013 holiday season and take steps to protect themselves. 2
  • A Worrisome Sales Trend 3 • Over the past five years, JC Penney has seen a drastic decline in sales. • Revenue has fallen from $18.5 billion in 2008 to $13 billion in 2012, a decline of nearly 30%. -30.0% -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 8,000 10,000 12,000 14,000 16,000 18,000 20,000 2008 2009 2010 2011 2012 YoYChange% TotalNetSales($millions) Sales Trends
  •  In addition to JC Penney’s worrisome decline in sales, the company has seen significant gross margin erosion in recent years.  Operating income has also declined markedly, turning strongly negative in 2012. Negative Profitability Trends 4 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 2008 2009 2010 2011 2012 Gross Margins -20.0% -12.0% -4.0% 4.0% 12.0% 20.0% (1,500) (1,000) (500) - 500 1,000 1,500 2008 2009 2010 2011 2012 OperatingMargin% OperatingIncome($millions) Operating Income
  • Too Much Low-Performing Space 5 • With nearly 1,100 stores and more than 111 million gross feet of retail space, JC Penney is a company badly in need of a drastic downsizing of its retail footprint. • Poor and declining performance in the key retail metric of sales per square foot suggests that a key facet of a successful turnaround will likely involve a reduction in both store count and square footage, which in turn suggests lower sales going forward. $0.00 $40.00 $80.00 $120.00 $160.00 $200.00 1,085 1,090 1,095 1,100 1,105 1,110 2008 2009 2010 2011 2012 SalesperGrossSq.ft JCPStoreCount Retail Footprint
  • Growing Liquidity Concerns 6 • The liquidity position of JC Penney has become critical. • The combination of declining sales, erosion in gross margins, challenges with managing fixed costs, and the steady need for capital expenditures have resulted in a cash burn of approximately $2 billion since 2009. • The company’s effort to raise more than $900 million in cash through a share sale is necessary in that it will improve the short-term liquidity picture, but it is also insufficient in that a turnaround of the business remains elusive. 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% - 500 1,000 1,500 2,000 2,500 3,000 3,500 2008 2009 2010 2011 2012 Cash-to-debt Cashandequivalents($millions) Liquidity Rating Agency Corporate Long-Term Debt Outlook Fitch Ratings B- B- Negative Moody s Investors Service, Inc. Caa1 Caa1 Negative Standard & Poor s Ratings Services CCC+ CCC+ Negative
  • Payment Terms 7 • In 2012, JC Penney’s suppliers were paid, on average, in 47 days, which represented by far the longest payment time of the past five years. • “Stretching” vendors is a common tactic for companies struggling with liquidity challenges. • For each increase in payment terms of 1 day, JC Penney is able to generate cash of approximately $25 million. – The change in payment terms from 2011 to 2012 alone was worth nearly $340 million to the company. 25.0 30.0 35.0 40.0 45.0 50.0 2008 2009 2010 2011 2012 DaysMerchandisePayables Outstanding Extended Payment Terms
  • Key Takeaways 1) JC Penney faces numerous challenges, and the outcome of its turnaround efforts are at this point unclear. 2) Store closures and other efforts to reduce the company’s retail footprint are likely to figure in any turnaround scenario. 3) The company’s liquidity picture is worrisome, and recent efforts to raise capital will do little more than buy time if the company’s prodigious cash burn cannot be stopped. 4) In 2012, payment terms to suppliers spike to 47 days, with the result being that JC Penney was able to effectively borrow an incremental $340 million from its suppliers. 8
  • About ACM Partners • ACM Partners is a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services. • Margaret Bogenrief can be contacted at: – Email: margaret@acm-partners.com – Ph: 312-505-0700 • David Johnson can be contacted at: – Email: david@acm-partners.com – Ph: 312-505-7238 • For more information visit: www.acm-partners.com. 9