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Takeaway: JCP deal -- how can you stay short from here? JCP/factoring fear is not moot -- espec w pos comp trends. FNP/Kate Saturday. JNY Loses KKR.


JCP - J.C. Penney Offers 84M Shares to Raise Capital


  • "[JCP] could raise $1 billion in the form of a stock offering. The company said after the equity markets closed Thursday that it will offer to the public at least 84 million shares of its common stock, and that it intends to give Goldman Sachs, the underwriter, a 30-day option to purchase an additional 12.6 million shares of common stock."
  • "Penney’s said it will use the net proceeds from the offering for general corporate purposes."
  • "The public offering comes after [Mike Ullman]...told investors Wednesday that the company 'wouldn’t raise capital until the end of the year' and that they should 'not believe that circus you hear about,' according to one participant."

Additional Commentary:

  • "Struggling retailer [JCP] said it expects to end the year with about $1.3 billion in cash, excluding the proceeds from a share offering."


  • The offering is priced at $9.65/share

Takeaway: The worst kept secret on Wall Street. We still contend that JCP is doing this deal because it wants to, not necessarily bc it needs to. Now it will have well over $2bn in cash at year end plus another $1bn in cash it could raise through monetizing assets and tapping revolver and accordion.  Is there dilution with the deal? Of course. But the ‘JCP going to zero’ short case is very difficult to make at this point. We still like JCP as we think that the damage done over the past two years is fixable. We’re hosting a call later today to discuss our thoughts on the name and take Q&A. 

JCP - J.C. Penney Projects Positive Comp Trends


  • "[JCP]...said, 'The company still anticipates it will experience positive comparable-store sales trends coming out of the third quarter and throughout the fourth quarter of 2013.'
  • "Penney’s also noted it was 'pleased with its progress thus far' in its turnaround efforts and in the 'traction' its initiatives are starting to achieve."
  • "The retailer noted that 'it is starting to see greater predictability in its performance across many areas.'"
  • "'The company continues to be encouraged by improvements in purchase conversion both in store and on jcp.com, primarily due to being back in stock in key items and sizes the customer expects to find at J.C. Penney...Overall sales on jcp.com continue to trend double digits ahead of last year.'"

Takeaway: This came on the heels of several firms commenting that comps were negative and would stay that way. Guess not.

JCP - Penney suppliers face credit squeeze as fears mount


  • "So-called 'factoring' companies that finance clothing deliveries to Penney are tightening credit terms, shortening payment windows and tacking on extra surcharges as worries about the retailer’s business mount, The Post has learned."
  • "Commercial-lending giant CIT is approving Penney orders selectively and has increased its surcharge to 2 percent, despite holding a $100 million letter of credit from Penney that the chain had tried unsuccessfully to claw back this summer, sources said."
  • "Wells Fargo, which also has a large factoring arm, is still supporting Penney orders, although the bank has acquired a financial hedge worth $50 million in the event of a Penney bankruptcy, according to a source."
  • "The clampdowns — which in some cases have also shortened payment windows to 30 days from 45 to 60 days — are more opportunistic than a signal of real worries about a potential bankruptcy filing this year, according to insiders."
  • "However, an insider noted that the firm, which is raising its own surcharge to 2 percent, doesn’t believe a Penney bankruptcy filing is 'imminent' this year."
  • "Other firms that are raising fees including Capital Business Credit, which is asking for a 3-percent surcharge on some deliveries, according to sources."

Takeaway: There’s a new story about JCP battling factoring firms just about every month. At best half of them are true. Also keep in mind that factoring firms breed fear. When the public gets concerned about business trends and liquidity by reading the Post, factoring firms gain leverage to raise fees.  The equity deal this morning shoots this in the foot, as factoring firms have zero leverage when cash balances are going up by $1bn.

JNY - KKR Drops Out of Jones Hunt


  • "Private equity giant KKR & Co. has dropped out of the hunt for The Jones Group Inc. The investor had teamed up with Sycamore Partners in a bid to buy the company. A source familiar with the situation said Thursday that Sycamore was still in pursuit, with managing director Stefan Kaluzny now taking the lead. Although KKR is on the sidelines, the firm might still have a role to play down the line, the source said."
  • "The process is now centered on determining 'what people really want and what they will pay' and 'figuring out the pathway to a transaction,' said one source."
  • "Although a sale of the entire company would be simpler, Jones might ultimately get a better price if it sells the business off in parts. And that dynamic appears to have played a part in KKR’s departure."

Takeaway: This is a sign of the times. Recall that FNP had the top suitor for Lucky and Juicy both walk out earlier this week.  

FNP - West Third Street Keeps Independent Flavor


  • Kate Spade Saturday, the younger concept collection from New York brand Kate Spade, just recently opened a store on Los Angeles’ West Third Street, generally considered to be a thoroughfare of independent boutiques.

What’s New Today in Retail (9/27) - chart1 9 27

RUE - rue21 discloses comps


  • "rue21...is disclosing the following information , which has not been previously reported and may be provided to prospective lenders in connection with the financing of the transactions contemplated by the previously announced merger agreement, dated as of May 23, 2013…"
  • "The soft sales pattern seen in Fiscal August is continuing in the third quarter to date with comparable store sales down 9.5% through September 24th. To date in Fiscal September, which began September 1, 2013 and will end on October 5, 2013[ 9/1-10/5], comparable store sales were down 12.8%. Compared to the comparable periods of last year, total sales for the third quarter to date are up 2.3% and for Fiscal September to date are down 1.3%."

L - Joe Fresh Taps Mario Grauso


  • "Joe Fresh has hired Mario Grauso as chief operating officer, a new position geared to help put the brand on the global stage."
  • "Joe Fresh is currently distributed only in North America and, in the past few years, has focused on opening stand-alone stores in Canada and the U.S. and rolling out shops inside J.C. Penney stores." 
  • "Grauso has more than 20 years of experience in the fashion industry. Most recently he was president of the Vera Wang Group, beginning in 2009."

TGT - Attention Amazon Moms: Target.com Wants You


  • "Target.com announced the launch of a subscription service that allows parents of infants and toddlers to put aside some of their worries and save money by ordering items such as diapers, formula and wipes on a recurring basis."
  • "Like the Subscribe and Save program on the Amazon Mom page, customers of Target.com can now order from a group of items and have them delivered to their doorsteps at regular intervals, from four to 12 weeks. Target says consumers who participate in the program can save up to 15 percent and receive free shipping. "Those who pay using Target's REDcard will save an additional five percent."
  • “A total of 150 items from Target's up&up private label are included in the program, as well as national brands including Enfamil, Huggies, Pampers, Seventh Generation and Similac."

CROX - Crocs hires Nike director Tim Lyons to lead European retail operation


  • "Lyons, who is based in The Netherlands, is responsible for Crocs’ 115 owned stores and 98 franchise stores across 45 countries."
  • "He was previously director of Nike’s factory stores throughout western Europe."

Takeaway: Going from Nike to Crocs? Seriously? We have to do the obligatory double-take on CROX when they start attracting that kind of talent.

Bi-Lo, Winn-Dixie parent files for IPO


  • "The parent company of Bi-Lo and Winn-Dixie supermarkets, Southeaster Grocers, has filed for an initial public offering." 
  • "The shares are expected to be offered by Southeastern Grocers, and the number of shares to be offered and the price range for the offering have not yet been determined."