Moody's notes that in from of Department store
chain, J.C. Penney JCP recently announced that Mike Ullman has
rejoined the company as Chief Executive Officer effective immediately. He
succeeds Ron Johnson who is stepping down and leaving the company. Mike
Ullman was formerly the CEO of JCP from 2004 to 2011.
We view this announcement as having many credit negative implications. It
adds to the lack of visibility of future performance and raises Moody's
concerns that liquidity may have contracted in the first quarter more
than anticipated. It also creates a heightened uncertainty around JCP's
go forward strategy (both short and long term). Thus, we believe this
announcement will not solve JCP's near term earnings pressures. In fact,
we are concerned that JCP's return to coupons and a more promotional
selling strategy may negatively impact first and second quarter operating
margins while the company works to reprice its private label merchandise.
Furthermore, it does raise concerns regarding corporate governance and
how activist shareholders may impact strategy. We had presumed that Ron
Johnson would have been given enough time to complete the rollout of the
home shops before the board of directors would make any decision
regarding his future role. Thus, the CEO change at this time appears
abrupt and is likely a signal that JCP's performance so far in 2013 is
weaker than anticipated. In addition, JCP's performance under Mike Ullman
was lackluster with JCP generally underperforming its peers.
However, this announcement did not prompt a change to the B3 Corporate
Family Rating. We do view positively that Mike Ullman is already
familiar with JCP, will provide continuity to a management team who has
undergone numerous significant changes, and is better than a prolonged
empty CEO seat while the board searches for a replacement. In his prior
tenure as CEO he had a more conservative management approach than that
displayed during Ron Johnson's term. In addition, his relationship with
vendors should provide a calming influence. Under Mike Ullman's
leadership, JCP did launch the first of its two specialty shops, Sephora
and MNG by Mango. The existing B3 Corporate Family Rating presumes that
there will be no material change in the shop strategy.
JCP's B3 Corporate Family Rating continues to reflect the near term
significant weakness in JCP's operating performance and credit metrics.
The rating is supported by our opinion that JCP's near term liquidity
remains adequate, albeit likely contracting. The rating also
acknowledges the lack of near dated debt maturities. JCP's nearest debt
maturity is not until 2015 when its $200 million 6.875% medium term notes
mature.
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