UPDATE: S&P Cuts JCPenney (JCP) from BB- to B+; Outlook Negative
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Price: $18.98 --0%
Overall Analyst Rating:
NEUTRAL (= Flat)
Dividend Yield: 2.3%
Revenue Growth %: -16.3%
Overall Analyst Rating:
NEUTRAL (= Flat)
Dividend Yield: 2.3%
Revenue Growth %: -16.3%
Trade JCP Now!
(Updated - July 11, 2012 3:53 PM EDT)
Standard & Poor's Ratings Services said today that it lowered its corporate credit rating on Plano, Texas-based J.C. Penney Co. Inc. (NYSE: JCP) to 'B+' from 'BB-'. Concurrently, we are removing all ratings from CreditWatch with negative implications, where they were placed on May 17, 2012. The outlook is negative.
At the same time, we lowered the issue-level rating on the company's unsecured debt to 'B+' from 'BB-'. The recovery rating remains '3', indicating our expectation for meaningful (50%-70%) recovery in the event of payment default.
"The downgrade reflects recent performance that has been below our expectations and our view that it will remain weak over the next 12 months," said Standard & Poor's credit analyst David Kuntz. Credit protection measures have eroded meaningfully because of J.C. Penney's decline in EBITDA. It also incorporates our belief that the company is likely to experience some further operational disruptions over the next several quarters as it implements its new pricing and merchandising strategy.
The ratings on Penney reflect Standard & Poor's assessment that the company's business risk profile is "weak" and its financial risk profile is "highly leveraged." Our business risk assessment incorporates our analysis that the department store industry is highly competitive with large, well-established participants.
"Based on this environment," added Mr. Kuntz, "it is out view that further performance difficulties may result in the loss of market share to other players, such as Macy's, Kohl's, Dillard's, or other department stores or specialty retailers."
The negative rating outlook reflects our view that further operational issues are likely over the next year and that the risk for performance downside remains high. In our view, it will take at least another few quarters for the company's revised marketing message to stimulate customer traffic and the new merchandising strategy begin to have some positive effects on performance.
Until that occurs, it is likely that operations and credit protection measures could erode meaningfully.
Although consideration for am upgrade is very unlikely at this point, key positives would include implementation of the strategy without moderate disruptions, no further meaningfully changes in the management team, and performance recovery much earlier than we expect. Under this scenario, credit protection measures would be well ahead of our projections with leverage in the low-4x area and interest coverage above 3x.
We could consider lowering our rating if first-quarter trends persist throughout the balance of the year because of issues in implementing the company's new strategy or a weakening of the macroeconomic environment. Under this scenario, EBITDA would have declined 35% in 2012, which would result in leverage remaining above 6.5x by year-end. Additionally, any meaningful share repurchases over the near term could have a negative effect on the rating or
outlook.
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Standard & Poor's Ratings Services said today that it lowered its corporate credit rating on Plano, Texas-based J.C. Penney Co. Inc. (NYSE: JCP) to 'B+' from 'BB-'. Concurrently, we are removing all ratings from CreditWatch with negative implications, where they were placed on May 17, 2012. The outlook is negative.
At the same time, we lowered the issue-level rating on the company's unsecured debt to 'B+' from 'BB-'. The recovery rating remains '3', indicating our expectation for meaningful (50%-70%) recovery in the event of payment default.
"The downgrade reflects recent performance that has been below our expectations and our view that it will remain weak over the next 12 months," said Standard & Poor's credit analyst David Kuntz. Credit protection measures have eroded meaningfully because of J.C. Penney's decline in EBITDA. It also incorporates our belief that the company is likely to experience some further operational disruptions over the next several quarters as it implements its new pricing and merchandising strategy.
The ratings on Penney reflect Standard & Poor's assessment that the company's business risk profile is "weak" and its financial risk profile is "highly leveraged." Our business risk assessment incorporates our analysis that the department store industry is highly competitive with large, well-established participants.
"Based on this environment," added Mr. Kuntz, "it is out view that further performance difficulties may result in the loss of market share to other players, such as Macy's, Kohl's, Dillard's, or other department stores or specialty retailers."
The negative rating outlook reflects our view that further operational issues are likely over the next year and that the risk for performance downside remains high. In our view, it will take at least another few quarters for the company's revised marketing message to stimulate customer traffic and the new merchandising strategy begin to have some positive effects on performance.
Until that occurs, it is likely that operations and credit protection measures could erode meaningfully.
Although consideration for am upgrade is very unlikely at this point, key positives would include implementation of the strategy without moderate disruptions, no further meaningfully changes in the management team, and performance recovery much earlier than we expect. Under this scenario, credit protection measures would be well ahead of our projections with leverage in the low-4x area and interest coverage above 3x.
We could consider lowering our rating if first-quarter trends persist throughout the balance of the year because of issues in implementing the company's new strategy or a weakening of the macroeconomic environment. Under this scenario, EBITDA would have declined 35% in 2012, which would result in leverage remaining above 6.5x by year-end. Additionally, any meaningful share repurchases over the near term could have a negative effect on the rating or
outlook.
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