J.C. Penney Discloses SEC Inquiry Into Finances, Offering
J.C. Penney disclosed that the U.S. Securities and Exchange Commission asked for information about the retailer's finances, including a stock sale in September that it's using to fund an attempted turnaround.
A letter from the SEC on Oct. 7 requested "information regarding the company's liquidity, cash position, and debt and equity financing, as well as the company's underwritten public offering of common stock," Plano, Texas-based J.C. Penney said yesterday in a quarterly filing.
The company said it's cooperating with the SEC and providing the requested material. On Sept. 26, J.C. Penney announced an offering to sell as much as $932 million of new shares amid a turnaround effort.
"Receiving a letter of inquiry from the SEC is a serious matter, but in my view, there's no malfeasance on the part of J.C. Penney's management," William Frohnhoefer, a New York-based analyst at BTIG LLC, said in a phone interview. "Investors are concerned with the dilutive equity financing, and I think they raised their concerns in every venue they possibly could."
J.C. Penney raised the ire of investors when it unveiled the September offering, which diluted them by 38 percent, because earlier that day the company said it was "pleased" with the turnaround. Since then, shareholders have filed several lawsuits related to the matter. Investors also were dismayed because just a month earlier J.C. Penney had said its liquidity forecast for the end of the year didn't assume any outside financing.
The shares dropped 8.4 percent Thursday after hedge-fund manager J. Kyle Bass said he sold his stake in the struggling retailer. The shares had fallen 55 percent this year through Dec. 5.
Kristin Hays, a spokeswoman for J.C. Penney, declined to comment. BTIG's Frohnhoefer has a buy rating on the shares. BTIG expects to receive or intends to seek compensation for investment banking services from J.C. Penney in the next three months.
Mike Ullman, who returned for his second stint as J.C. Penney's CEO in April, has been working to undo a failed attempt by predecessor Ron Johnson to make the department-store chain into a destination for younger and richer shoppers. He has brought back sales events and popular private-label brands that Johnson nixed.
Ullman also has raised about $3.9 billion to fund the turnaround through borrowings and the share offering. J.C. Penney had $1.23 billion in cash and cash equivalents as of Nov. 2, a 20 percent decrease from the beginning of the third quarter.
J.C. Penney has said revenue would start growing again coming out of the third quarter, and it has backed that up by increasing same-store sales 0.9 percent in October and 10 percent in November, which is the first month of the fourth quarter. These increases come after same-store sales plummeted 32 percent in last year's fourth quarter.