(NYSE: JCP) and JCP stock was a bizarre one. Years earlier clothing retailers began getting ruined by online competition, hedge fund manager Bill Ackman chose about the corporation. He tried to reposition it by bringing in Ron Johnson, who was credited with creating and executing the Apple, Inc..
The stores were redesigned and renovated, according to Johnson’s store-within-a-store vision. However, the JCP stock price cratered and earnings were clobbered since the favorite discounting model was extinguished.
One of the things which obtained customers into the stores was that JCP, like most retailers, threw vouchers around like confetti. The psychological impact of using a 15-25% voucher in a discount store couldn’t be replaced.
Thus, Johnson got booted, Ackman exited his position, and the business was switched over to new direction — just in time to allow brick-and-mortar retailers to experience body blows from online retail outlets.
Today, the JCP stock price is $3.91.
A Closer Look in JCP Stock
I really don’t see bankruptcy as an imminent danger, and there is possibly a speculative value play here for aggressive traders.
Looking at JCP stock and financials in the macro level, things are in fact somewhat stable. From fiscal year 2015 to FY17, total earnings actually climbed about 2.5 percent, operating income went from a $254 million reduction to a $395 million gain, due to big reductions in SG&A.
Free cash flow is still negative to the tune of nearly $100 million, however, and money available is down to $314 million. Long-term debt is $3.84 billion, even though debt maturities aren’t pressuring the business just yet.
For its first two quarters this season, there was a 2.4% decline in same-store earnings, and net loss almost doubled, from $124 million to $242 million. The fantastic thing is that operating cash flow improved from negative $208 million to positive $56 million. But increases in capital expenditures (capex) pushed loose money flow into negative territory to the tune of $136 million.
In terms of bankruptcy, there is sufficient operating cash flow to pay $190 million in debt maturing in 2018, $175 million in 2019, and $400 million in 2020 without needing much in the means of asset sales. The 2020 debt will likely require a refinance, however.
It will likely be refinanced, but JCP is sitting on property which will be conservatively valued at $2.25 billion which was pledged to the creditors anyhow.
It isn’t bankruptcy that is the actual concern for me personally. It’s only that JCP stock will only fade gradually into obscurity and irrelevance, like other retailers. Comps will fight and, possibly, even accelerate lower. There is no obvious catalyst to propel the business into expansion.
What that means is that I really don’t see JCP stock roaring to massive gains going forward. I just find several near-to-medium-term catalysts that may result in an aggressive and speculative transaction at such levels.
At $3.81 per share, there is not lots of downside in buying JCP stock, but it does not mean downside isn’t possible.
Two) The organization paying off debt.
3) A surprise dip in same-store sales.
4) A merger.
Yes, it’s possible JCP could merge or be acquired. I think there is the slight possibility that Amazon.com Inc.. (NASDAQ: AMZN) can purchase the chain because of its footprint. Unlikely, but possible. Another struggling retailer might attempt to join forces if the acquirer is cash rich and contains some kind of vertical approach.