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It’s beginning to look a lot like a cash crunch.
JCPenney CEO Ron Johnson is bracing for a blue Christmas after reporting a dismal third quarter, in which the struggling department-store chain lost $123 million as sales plummeted a shocking 27 percent.
The results stoked concerns that more red ink and sales declines could create a liquidity crisis in 2013, forcing the former Apple exec to either pile on debt or slash the budget for his already troubled turnaround effort.
“I am sure many of you are wondering how we’re going to make it through the next eight weeks,” Johnson told analysts and investors gathered in New York yesterday.
With Penney’s holiday prospects looking dire, Johnson has lately backtracked on his controversial move this year to eliminate coupons and sales events at Penney. Yesterday, he said this year’s Black Friday sales event on Thanksgiving weekend will be a “doozy,” and promised to reveal the strategy next week.
Nevertheless, some analysts were more focused on longer-term implications of the quarterly results, which revealed that Penney’s cash balance had shrunk to $525 million — less than half the year-ago amount, despite $279 million in asset sales during the quarter.
“Trends at JCPenney are obviously getting worse, not better, and we are becoming more and more convinced that sales in 2013 will also decline, which could lead to a going-concern problem next year,” said Charles Grom, an analyst at Deutsche Bank.
Yesterday, Standard & Poor’s cut its rating on Penney’s $2.9 billion in debt, citing the retailer’s iffy outlook — the second time since July that the ratings agency has deepened Penney’s decline into junk status.
Johnson remains upbeat about 2013, signaling that in the second half he expects a rebound from this year’s disastrous losses. But he has consistently missed financial targets throughout the past year.
Slashing Penney’s capital budget to shore up cash would be crippling for Johnson’s overhaul plans. Yesterday, he told investors that new in-store shops he has rolled out for brands like Levi’s, Izod and Liz Claiborne are performing better than expected, even as the rest of the sales floor falters.
Penney’s $123 million third-quarter loss was narrowed from $143 million a year earlier as it slashed costs. Revenue dropped to $2.92 billion, well short of Wall Street’s $3.23 billion forecast.
Penney shares tumbled as much as 10 percent before closing at $20.64, down $1.05 cents, or 4.8 percent.
Critics say Penney’s business is in a tailspin. Johnson’s “fair and square” pricing strategy has failed to convince customers they are getting a bargain despite broadly lowered prices. Johnson, however, insists he’s sticking to his guns.
“Until they really go back and push the promotional drug again this is going to continue,” said Stacey Widlitz, president of SW Retail Advisors.
Penney yesterday e-mailed its online customers an advertisement for sofas whose subject line was “Are you sitting down?”
“They should have sent that out 10 minutes before the earnings release,” one disgusted analyst told The Post.