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Coronavirus wreaks havoc on J.C. Penney's future

Brian Sozzi

The deadly coronavirus has J.C. Penney teetering on the verge of extinction.

J.C. Penney said Tuesday it will extend the closure of its stores indefinitely because of the coronavirus pandemic. A majority of hourly store workers will be temporarily furloughed beginning April 2. In the meantime, a significant portion of J.C. Penney’s corporate staff will be furloughed. Employees will not be paid, with J.C. Penney pointing to in a press release eligibility for unemployment benefits for some workers.

Most of the company’s workers in its supply chain and logistics centers were furloughed on March 20, and these will continue. J.C. Penney operates 850 stores in the U.S. and has 90,000 employees worldwide.

“These are difficult days all across the country and the globe. At JCPenney, we are making tough, prudent decisions to protect both the safety of our associates and the future of our Company," said J.C. Penney CEO Jill Soltau in a statement. "We remain optimistic about JCPenney’s ability to weather this pandemic. We also believe these short-term solutions will have a long-term benefit for our associates, customers, and key stakeholders as we look forward to the day that we reopen our doors."

J.C. Penney said it has taken several actions to improve its financial position. Some measures include deferring capital expenditures, tapping a credit revolver and extending the terms of payment for goods and services. The company said it’s evaluating other financial options, usually pre-cursor in retail for a high-yield debt offering.

FILE - In this Wednesday, June 7, 2017, file photo, shoppers walk into a J.C. Penney department store in Hialeah, Fla. On Friday, Aug. 11, 2017, J.C. Penney Company, Inc. Holding Company reports earnings. (AP Photo/Alan Diaz, File)

The market doesn’t share Soltau’s optimism, however.

J.C. Penney’s shares have crashed 47% in the past month to a mere 37 cents as stores have closed and consumers spend aggressively on toilet paper instead of apparel. The coronavirus couldn’t have occurred at a worse time for J.C. Penney. Soltau had promised investors that 2020 would be a turnaround year for the struggling company, reflecting efforts by her new teams to more efficiently run the business and sell stuff the core J.C. Penney customer wanted to buy.

Now all of that is effectively off the table.

‘Teetering on the fence of extinction’

In turn that leaves a company already having difficult generating cash flow because of years of terrible store traffic and sales. That — and the current climate around coronavirus — led J.C. Penney to tap $1.25 billion from its $2.35 billion credit revolver this month. But with J.C. Penney having $2.6 billion in debt due between 2020 and 2023, it’s essential the company gets cash into the business quickly to keep the confidence of its vendors and investors.

For that to happen, stores have to reopen soon and people will have to want to shop for apparel. And for J.C. Penney, capital expenditure deferment means it can’t reinvent itself in stores and online. Hence a vicious circle has begun for the chain in large part due to the coronavirus.

“If we are looking at two, three four or five months of closings and then a big ramp in demand for some of these retailers that are already where here, this is a massive pressure,” explained retail expert Stacey Widlitz of SW Retail Advisors on Yahoo Finance’s The First Trade.

The retail clock waits for no one.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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