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Global Credit Research - 10 Apr 2013
New York, April 10, 2013 -- Moody's notes that department store chain, J.C.
Penney ("JCP") recently announced that Mike Ullman has rejoined
the company as Chief Executive Officer effective immediately. He
succeeds Ron Johnson who is stepping down and leaving the company.
Mike Ullman was formerly the CEO of JCP from 2004 to 2011.
We view this announcement as having many credit negative implications.
It adds to the lack of visibility of future performance and raises Moody's
concerns that liquidity may have contracted in the first quarter more
than anticipated. It also creates a heightened uncertainty around
JCP's go forward strategy (both short and long term). Thus,
we believe this announcement will not solve JCP's near term earnings
pressures. In fact, we are concerned that JCP's return
to coupons and a more promotional selling strategy may negatively impact
first and second quarter operating margins while the company works to
reprice its private label merchandise.
Furthermore, it does raise concerns regarding corporate governance
and how activist shareholders may impact strategy. We had presumed
that Ron Johnson would have been given enough time to complete the rollout
of the home shops before the board of directors would make any decision
regarding his future role. Thus, the CEO change at this time
appears abrupt and is likely a signal that JCP's performance so
far in 2013 is weaker than anticipated. In addition, JCP's
performance under Mike Ullman was lackluster with JCP generally underperforming
its peers.
However, this announcement did not prompt a change to the B3 Corporate
Family Rating. We do view positively that Mike Ullman is already
familiar with JCP, will provide continuity to a management team
who has undergone numerous significant changes, and is better than
a prolonged empty CEO seat while the board searches for a replacement.
In his prior tenure as CEO he had a more conservative management approach
than that displayed during Ron Johnson's term. In addition,
his relationship with vendors should provide a calming influence.
Under Mike Ullman's leadership, JCP did launch the first of
its two specialty shops, Sephora and MNG by Mango. The existing
B3 Corporate Family Rating presumes that there will be no material change
in the shop strategy.
JCP's B3 Corporate Family Rating continues to reflect the near term significant
weakness in JCP's operating performance and credit metrics. The
rating is supported by our opinion that JCP's near term liquidity
remains adequate, albeit likely contracting. The rating also
acknowledges the lack of near dated debt maturities. JCP's nearest
debt maturity is not until 2015 when its $200 million 6.875%
medium term notes mature.
The principal methodology used in this rating was the Global Retail Industry
Methodology published in June 2011. Other methodologies used include
Loss Given Default for Speculative-Grade Non-Financial Companies
in the U.S., Canada and EMEA published in June 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and rating history.
J.C. Penney Company, Inc.("JCP") is one of
the U.S.'s largest department store operators with about
1,100 locations in the United States and Puerto Rico. It
also operates a website, www.jcp.com. Revenues
are about $13 billion.
Margaret M Taylor
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Kendra Smith
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's: JCP change in CEO will not solve near term earnings pressures and raises heightened uncertainty around strategy; outlook remains negative
No Related Data.
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