JCP

Publicly traded companies mentioned herein: JC Penney Company (JCP), Macy’s (M), Kohl’s (KSS) and Sears (SHLD).

Highlights

JCP management recently laid out a plan whereby the besieged department store retailer could generate as much as $1 billion in EBITDA this year followed by $1.2 billion next year. The problem with those projections, as the presenter sees it, is that they are predicated on a 3-4% comparable sales assumption, which appears highly aspirational in the context of JCP most recently having posted a negative 0.4% comp in Q1. A massively indebted company at four turns of leverage, the presenter reasons that the retailer simply isn’t in a position to make the necessary investments to drive that level of same store sales growth. Moreover, the bulk of the company’s recent EBIT generation has been driven by credit growth that may be in the process of slowing. He believes that if the macro climate were to shift even moderately, the company could face bankruptcy risk.