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Law360 (May 18, 2020, 6:21 PM EDT) -- Bankrupt J.C. Penney Co. is considering shutting down nearly a third of its stores by next year in a streamlining that will expand the retail chain's e-commerce business and focus on sites with lower competitive pressures and greater income, according to a disclosure filed Monday.
The business plan was part of a company filing with the U.S. Securities and Exchange Commission regarding its Chapter 11, launched in the Southern District of Texas on Friday. It noted that the company's store count could tentatively fall to 604 by next year from the 846 that were operating in 2019. E-commerce revenues, meanwhile, are expected to nearly double as a share of net sales, from 14% to 26%.
Net sales nationwide are expected to bottom out at about $3.8 billion in 2020 after plunging from $9.2 billion last year, with gross profits dropping from about $3.3 billion in 2019 to $1.14 billion this year. A return to a pre-bankruptcy track is expected in the second quarter of 2021, stabilizing by the holidays that year, the plan said.
While acknowledging that it is also exploring sale options, the chain said it aims to focus on the "strongest stores with positive trending historical" comparable sales, as well as low competitive pressure and high income "demographic representation." The remaining 604 stores accounted for 82% of net sales in 2019, the company said.
"The go-forward business will be a smaller but stronger, more effective and more profitable enterprise," the company's business plan said. "Although the network will be streamlined, we will still maintain nationwide coverage, allowing us to continue inspiring JCPenney shoppers across the country."
J.C. Penney described the plan and its details as "cleansing materials" that were a part of prepetition nondisclosure agreements with "consenting stakeholders and certain other creditors."
It added that the information was required to be made public upon undisclosed triggering events, "solely to facilitate a discussion with the parties to the NDAs and was not prepared with a view toward public disclosure and should not be relied upon to make an investment decision with respect to J.C. Penney."
The 118-year-old business sought protection from creditors after the COVID-19 pandemic led to a shuttering of stores that left 78,000 company employees furloughed, and after it reported that it was unable to fully service its $8 billion debt.
According to court filings before an initial court appearance on Saturday, the chain intends to market itself for a potential sale, while also pursuing a restructuring option under a plan that would form a real estate investment trust to hold real property. Surviving retail operations would go forward as a restructured operating company.
Along the way, the business will exit 116 metropolitan statistical areas that accounted for only 7% of 2019 revenues. Afterward, stores in the Midwest will account for 30% of J.C. Penney's network, the South 21% and the Southeast 17%.
The company opened its case with about $500 million in cash on hand and commitments for $900 million in debtor-in-possession financing from its first lien lenders, with half of the total made up of new cash rather than rolled-over prepetition debt.
Store closings details will be released in coming weeks, the company said in an announcement of the Chapter 11 move on Friday.
The SEC filing indicated that leased properties could account for the largest share of closings, with the number in that category dropping by 33%, while company-owned properties would decrease by only about 18%.
J.C. Penney is represented by Joshua A. Sussberg, Christopher J. Marcus, Aparna Yenamandra, Rebecca Blake Chaikin, Allyson Smith Weinhouse and Jake William Gordon of Kirkland & Ellis LLP and Matthew D. Cavenaugh, Jennifer F. Wertz, Kristhy M. Peguero and Veronica A. Polnick of Jackson Walker LLP.
The case is In re: JC Penney Company Inc., case number 20-20182, in the U.S. Bankruptcy Court for the Southern District of Texas.
--Editing by Haylee Pearl.
For a reprint of this article, please contact reprints@law360.com.
