JCPenney to Customers: “We Learned From Our Mistakes”

Plano, TX—It’s a seldom seen tactic from a major retailer: apologizing to its customers for a litany of mistakes.

But if you’re JCPenney–with a sales loss of $427 million, some 20,000 fewer employees than a year ago, had revoked then reinstated price-off sales and shelved popular brands favored by your longtime customers–then it may indeed be time to ‘fess up.

Following the ouster of its controversial CEO Ron Johnson and reinstating Myron “Mike” Ullman as temporary chief executive to help quash market speculation, the department store has now taken to TV (also You Tube) with its 30-plus second commercial that asks for forgiveness from JCPenney shoppers.

“It’s no secret, recently JCPenney changed,” the commercial states. “Some changes you liked and some you didn’t, but what matters from mistakes is what we learn. We learned a very simple thing, to listen to you. To hear what you need, to make your life more beautiful. Come back to JCPenney, we heard you. Now, we’d love to see you.”

Secures $1.75 Billion Loan from Goldman Sachs

The commercial caps the retailer’s attempts to shore up its finances in wake of Johnson’s departure. On Monday, the company announced it has secured a $1.75 billion loan commitment from Goldman Sachs. That followed up news earlier in April that JCPenney drew down $850 million on its $1.85 billion revolving credit facility to finance its working capital needs and capital expenditures, such as buying merchandise.

JCPenney also reportedly pledged a “significant” portion of its real estate property to secure the loan, which Goldman Sachs Group Inc. is managing.

“This loan facility is an important component of our strategic plan to strengthen the company’s financial position,” said Kenneth Hannah, the company’s chief financial officer. “Together with our revolving credit facility, this will give us the financial strength we need to meet our current funding requirements and build toward a successful future.”

JCPenney also scored another boost to its finances last week when George Soros, the legendary hedge fund mogul, took a 7.9% stake in the retailer, making him its fourth largest shareholder.

The Goldman Sachs and Soros deals may have given a slight boost to shares of JCPenney though any increases make only a little dent in the more than 50% drop the company’s shares have experienced.

Moreover, analysts believe JCPenney may using up as much as half of its $930 million in case during first quarter this year. If so, then JCPenney would have roughly $2.1 billion in cash vs. its debt of $4.7 billion. The new loan would add $120 million to its pre-tax interest expense.

Meanwhile, Moody’s Investors Service, one of the credit rating companies,  lowered its long-term ratings for JCPenney, saying a new term loan won’t fix long-term performance concerns or reduce the amount of cash the retail store operator is expected to burn through over the next 12 months.

Cutting JCPenney from a “B3” to a “Caa1”—“judged to be of poor standing and are subject to very high credit risk,” Moody’s stated: “The downgrade acknowledges that the term loan will greatly weaken JCP’s capital structure at a time when its earnings are at precarious levels. The downgrade reflects Moody’s opinion that the position of the existing bondholders has been weakened by the addition of further secured debt ahead of the unsecured notes in the capital structure.”

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Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com