J.C. Penney Co. said it has drawn $850 million from its $1.85 billion revolving credit line, a sign that the flailing department store chain is in a cash crunch after a disastrous turnaround plan launched early last year.
The Plano, Texas-based department store chain said Monday that proceeds will be used to fund working capital requirements and expenditures including replenishing inventory for a newly overhauled home area. The new home area, which includes merchandise from names like Jonathan Adler and Michael Graves, is being rolled out to 500 of its 1,100 stores by next month.
Chief Financial Officer Ken Hannah said in a statement that the drawing of the funds "provides more than its current funding needs to ensure our continued liquidity," but it is also looking to explore other ways to raise more money.
The latest development comes a week after Penney fired its CEO Ron Johnson 17 months on the job. Johnson, the mastermind behind Apple Inc.'s stores, spearheaded a costly turnaround plan that included getting rid of most discounts, bringing in hip brands and transforming the stores into collections of mini boutiques. The changes turned off shoppers, resulting in a nearly billion-dollar loss and a 25 percent drop in revenue for the fiscal year ended Feb. 2.
Penney replaced Johnson with Mike Ullman, who had been its CEO for seven years until November 2011 when he was succeeded by Johnson, to stabilize the business. However, pressure is mounting on Ulllman, who has to quickly decide which parts of Johnson's legacy to keep and which to trash while looking for ways to get shoppers in the store.
Johnson's firing came as Penney was in the middle of rolling out 20 mini-shops devoted to various brands in the home area. When the home area is completed, 30 percent of the store will have been redone.
In early February, Penney amended its bank credit facility to increase its borrowing capacity to $1.85 billion, from $1.75 billion, but some analysts had expected that it wouldn't tap into the credit line until the middle of the year
"This shows that Penney is burning through cash quicker than anyone expected," said Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisers.
Last November, Penney said it would end the latest fiscal year with $1 billion in cash. Penney wound up ending the year with $930 million in cash, which was better than analysts had feared but below the company's target. However, the figures looked better than they really were because Penney staggered some payments to vendors into the first quarter.
Shares of Penney rose 12 cents to $14.74 in late morning trading. The stock has lost more than 65 percent of its value since February 2012, when investors were bullish about Johnson's plan.