Investors Shun J.C. Penney Shares
NEW YORK (TheStreet) -- Investors shunned J.C. Penney's
Shares were dropping 3.2% to $18.19 at last check on Friday.
The stocks of Wal-Mart Stores
J.C. Penney said Thursday that it had a first-quarter loss of $348 million, or $1.58 a share. Net loss for the quarter totaled $289 million, or $1.31 a share when adjusted for charges related to the retailer's restructuring and management transition. J.C. Penney said restructuring charges were $72 million.
Sales at the Plano, Texas-based retailer dropped by 16.4% to $2.64 billion from year-earlier sales of $3.15 billion. Comparable-store sales declined by approximately 16.6%, fueled by the ongoing transformation of its home department, the company said.
J.C. Penney's gross margin dropped from 37.6% of sales to 30.8%, which was "negatively impacted by lower-than-expected sales, a higher level of clearance merchandise sales and a return to some promotional activity towards the end of the quarter," the company said in a statement.
Analysts seemed most concerned with the bigger-than-expected "free cash flow burn" the company went through in the quarter. J.C. Penney said last week, when it pre-announced its dismal sales figures for the quarter. that cash and cash equivalents were about $821 million as of May 4.
"We remain underweight and see further downside risk to the Street's 2013-2015 outlook," Morgan Stanley analysts Kimberly Greenberger and Heather Balsky wrote in a note Friday, in which they characterized the company's first-quarter "cash burn," as "worse than expected."
While inventory levels fell 9% from a year earlier, which was better than the nearly 17% drop in same-store sales, "merchandise payables rose 27%," they said.
"Typically, inventory and payables move in sync, suggesting JCP is delaying payments," the analysts wrote.
J.C. Penney's $821 million cash levels imply a $959 million cash burn, below the analysts' $1.2 billion estimate. The company boosted its cash by pushing into future quarters approximately $1.2 billion of liabilities, including $470 million of workers comp liabilities, $335 million of accrued capex and $355 million of deferred vendor payments, according to Morgan Stanley.
"This means JCP actually burned $2.1 billion, much worse than we thought. Inventory is expected to build over the next 6-9 months, further straining cash levels, in our view," the note said.