New York—Fitch Ratings, the ratings agency, this week lowered JCPenney’s credit rating into junk status on fear the struggling department store may be using up its cash faster than previously thought.
Fitch now rates JCPenney’s “issuer default ratings” further into junk status, moving it to “CCC” from “B-.”
Last week, the Plano, Texas-based JCPenney announced it would sell some 96.6 million shares of common stock in a public offering in an effort to shore up its cash reserves. The money is needs to help finance the retailer’s turnaround after a failed attempt by former CEO Ron Johnson to upscale the store.
Fitch reported this week that it now expects JCPenney to “burn through $2.8 billion to $3 billion in cash” in 2013, which is $1 billion more than its May forecast.
The rating agency also said it was concerned by JCPenney will need to generate between $750 million to $875 million in earnings “before interest, taxes, depreciation and amortization” to finance continued spending of $400 million to $500 million and cash interest expenses of $360 million to $375 million. In other words that would mean JCPenney would have to hit sales of $13.4 billion to $13.6 billion, or about 14% to 16% above levels projected for 2013.