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Penney to raise up to $932 mln as holiday shopping season looms

Friday, 27 Sep 2013 | 10:15 AM ET
Adam Jeffery | CNBC

Struggling department store operator J.C. Penney said Friday it expects to raise up to $932 million from a share sale, leaving it with about $2.2 billion in cash at the end of the year.

Penney, whose shares have been hit by concerns it doesn't have enough cash to fund operations going into the holiday shopping season, said on Friday that without the offering it would have about $1.3 billion in cash by the end of the yearabout $200 million less than it had forecast on Aug. 19.

That suggested the company was burning through cash faster than expected, an issue highlighted by several analysts who have a "sell" rating on the stock.

(Read more: JC Penney leaning toward $1 billion equity raise)

Penney said on Friday it would sell 84 million shares in a public offering at $9.65 per share.

JC Penney: No need to raise capital
JC Penney CEO Mike Ullman says he is "pleased with progress in the company's turnaround efforts," and "vendors are very supportive." Rick Snyder, Maxim Group; Jan Kniffen, Worldwide Enterprises CEO; and CNBC contributor Herb Greenberg, discuss.

The retailer's stock fell 11 percent to $9.30 in early trading. The share sale would increase Penney's shares outstanding by 38 percent, excluding the 12.6 million additional shares the underwriters have the option to buy.

"While an equity raise improves (near-term) liquidity, we remain concerned that JCP will continue to burn cash in '14 and beyond," UBS analyst Michael Binetti, who has a "sell" rating on the stock, wrote in a note.

Binetti said the pre-holiday capital-raising, along with cautious comments from Penney's mall peers, increased concerns that near-term trends were not improving as anticipated.

JPMorgan analyst Matthew Boss said the offering would dilute earnings per share by 28 percent.

Penney, whose shares have lost almost half of their value this year, announced the offering after the markets closed on Thursday but did not disclose the pricing.

Collapsing sales

The company, which has a market value of just over $2 billion, has been hit by collapsing sales after a failed attempt in 2012 to go up-market. Sales fell 25 percent last year, and have continued to fall this fiscal year.

Penney's offering confirmed an exclusive Reuters report on Wednesday that the company was looking to raise as much as $1 billion in new equity to build its cash reserves.

Penney spokeswoman Kristin Hays denied a CNBC report on Thursday that said Chief Executive Mike Ullman had told investors there was no need to raise more money before the end of the fourth quarter, which ends in early February.

JCP's Ullman says company will not need to raise capital now
JC Penney CEO Mike Ullman told a group he doesn't see conditions this year where the company will need to raise liquidity, reports CNBC's Scott Wapner.

Penney's shares climbed on the CNBC report, as well as in response to a statement from the company early Thursday that said it anticipated positive comparable sales trends as it comes out of the current quarter, and throughout the holiday quarter.

Hays said on Thursday the company had decided to do the share offering now because of all the negative headlines this week about its financial health.

The capital-raising is in response to uncertainty and is aimed at reassuring suppliers and employees, she said.

"This is not because of panic, it's to be prudent," Hays said.

Penney had total debt of $5.82 billion as of Sept. 6, the prospectus for the stock offering showed.

Earlier this year, Penney got a $2.25 billion loan arranged by Goldman Sachs, which is also the sole book-running manager for the stock offering.

Goldman said in a research note this week that poor business fundamentals, the need to rebuild inventory of goods popular with long-time customers and the weak performance of its home goods department would likely put pressure on Penney's liquidity.

Penney's shares have been on a wild ride in the past two days: plunging on the Goldman research, and declining further on the Reuters report about a capital raising, before recovering some of those losses on the company statement about trading conditions and the CNBC report. The shares fell again on the share sale announcement on Thursday, and continued their slide on Friday.

By The Associated Press

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