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JCPenney CEO Ron Johnson isn’t giving a timeline for his company’s turnaround, but some board members would like to provide one for him.
Shares of the flailing retailer plunged 17 percent yesterday following a disastrous fourth-quarter report that disclosed a $552 million loss as sales dropped by nearly a third.
The quarterly catastrophe has heightened tensions among Penney directors, with some pushing for Johnson’s ouster if the business doesn’t turn this quarter — or at least a fundamental change in strategy, according to insiders close to the retailer.
“They’re in a pickle, because [Johnson] has created a situation that will be difficult for anybody to reverse, no matter how smart they are,” according to one source briefed on the situation.
Hedge-fund billionaire Bill Ackman, who effectively controls the board as Penney’s largest shareholder, was voicing his support for Johnson in conversations with business partners as recently as this month, according to one source.
“He talks about the shop-in-shops, how great they’re going to be,” a source said of Ackman, referring to Johnson’s plan to open 100 in-store shops for brands and designers including Levi’s, Martha Stewart and Nanette Lepore.
This week, however, Johnson admitted the rollout could be hamstrung by Penney’s cash position, which is rapidly deteriorating. While Johnson promised to close out the fiscal year that ended Feb. 2 with $1 billion in cash, the figure came in at $930 million.
To make matters worse, Penney revealed that its accounts payable to vendors surged 15 percent, even as the retailer’s inventory dropped 20 percent. That’s a sign that Penney has been stretching out payments to its suppliers in a bid to conserve cash — to the tune of $340 million, according to an estimate by a Morgan Stanley analyst.
The news took many of Penney’s suppliers by surprise, and raises the risk that financing for inventory orders will become more costly in the coming months.
Chief Financial Officer Ken Hannah told analysts Wednesday that Penney this month has paid $85 million in bills that were due in the fourth quarter, reducing its current cash balance to $850 million.
Hannah said Penney meanwhile had pushed back the rest of its vendor payments permanently, insisting that overdue bills won’t spur a cash crunch.
If not, Penney could run out of cash by the end of the current quarter without a significant improvement in business, forcing it to tap its credit line, analysts said.
Penney didn’t respond to a request for comment.