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J.C. Penney is in desperate need of cash

Brian Sozzi

More cash, please.

If J.C. Penney is to achieve a stunning turnaround under new CEO Jill Soltau, it will need more cash. Whether that comes from a high yield debt raise, new credit lines or a healthier business that produces profits, the cash has to start filtering into J.C. Penney’s coffers quickly.

Because as it stands, years of losses have put J.C. Penney’s cash outlook in a precarious position. J.C. Penney (JCP) reported Thursday that its total cash as of Feb. 2 stood at a mere $333 million. A year ago, J.C. Penney had cash of $458 million.

The company’s free cash flow — defined as operating cash flow minus capital expenditures — fell to $111 million from $213 million a year ago. J.C. Penney said it expects to be “free cash flow positive” in 2019. But how much free cash will be created from the struggling business is unclear.

Cash is the lifeblood of any retailer (ask Sears about that). When you are looking at a burdensome $3.7 billion debt on the balance sheet, as J.C. Penney is, a weak cash position is far from a positive. About $160 million of that debt will come due within the next few years, according to the company.

Moreover, J.C. Penney will need cash to revitalize the look of its department stores while at the same time investing in new online capabilities. Both are mission critical if it wants to compete with healthier retailers such as Target, Kohl’s and Macy’s. If more stores are closed, as is likely, J.C. Penney will need the cash to get out of leases and give severance to employees.

A man enters the JC Penney store at the Manhattan mall in New York. (AP Photo/Mary Altaffer, File)

J.C. Penney lost $255 million in 2018, up from a $118 million loss a year earlier, as same-store sales declined 3.1%. Cash flow was under pressure all year as J.C. Penney saw weak sales throughout many of its departments. That triggered aggressive discounts during the all-important fall and holiday selling seasons.

Retail veteran Soltau joined J.C. Penney in October. While she has mostly been on a listening tour with employees and vendors since, Soltau’s plan to save J.C. Penney is starting to take shape.

The company said recently it will exit the appliance business amid several quarters of weak sales. On Thursday, J.C. Penney said it would close 18 department stores and nine home furnishings locations that were seeing sub-par profits.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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