Investors Shun J.C. Penney Shares

Tickers in this article: JCP SHLD WMT

NEW YORK (TheStreet) -- Investors shunned J.C. Penney's stock Friday following dismal earnings results and concerns over whether the company can regain the traction it lost even with the return of its former CEO.

Shares were dropping 3.2% to $18.19 at last check on Friday.

The stocks of Wal-Mart Stores and Kohl's , were also slipping a day after both retailers reported first-quarter earnings that fell 0.9% and 0.3%, respectively. Shares of Sears and Target were each in the green on Friday.

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."

"Is JCP still deferring vendor payments to shore up cash?" the analysts wrote.

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.