JCPenney, an icon of American department stores, is on the verge of collapse. Penney’s has over 800 locations in 49 states, and employs roughly 95,000 people. Last week, the company announced a 1st quarter loss of $154 million, or $0.48/share. Analysts are projecting a loss of over $600 million for 2019…..assuming Penney’s even survives the year.
Penney’s stock (NYSE:JCP) was down 3 cents/share today, closing at 89 cents/share. This share price, if it remains here much longer, will trigger the “802.01c” rule established by the New York Stock Exchange. This rule states that JCPenney must increase its share price above $1.00, or be delisted from the exchange. With shares delisted, Penney’s extinction is basically guaranteed.
Earnings do not exist to cause Penney’s share price to increase. The only way to increase the share price is to conduct a “reverse stock split” of the shares, where owners loose a percentage of their shares, such that the given book value & earnings (or losses) are divided across fewer shares. Such a move causes no effect to overall shareholder value, but does reset the stock price above the $1.00 limit. The move is also perceived very negatively by current and potential shareholders.
Penney’s is just another casualty of the “retail apocalypse”. In the past few weeks, DressBarn announced they were shuttering all of their 650 locations. Fred’s Groceries in April announced they were closing 30% of their 557 stores, and just announced the closing of an additional 104 stores by the end of June. Victoria’s Secret will be closing 53 stores, and The Gap will be closing 230 stores over the next 24 months. Charlotte Russe announced earlier this year they were liquidating and closing all remaining stores. Similarly, Payless ShoeSource declared bankruptcy and announced in February they were closing all 2500 remaining North American locations. And of course, in October last year, Sears/Kmart declared bankruptcy.
The list of retail bankruptcies and store closures above only scratches the surface. Only once before in US history have so many retail shops failed, and that was during the Great Depression of the 1930s.
While the stock market remains propped up by unscrupulous investment banks, the real economy is deteriorating rapidly. Even CNBC host of “Mad Money” Jim Cramer is finally admitting as much: https://www.cnbc.com/2019/05/28/cramer-the-us-economy-may-be-on-the-verge-of-a-significant-slowdown.html
And one might ask, “Paul, so what? We have seen downturns before, and they always rebound.” The issue this time around is that there are no more bullets in the economic arsenal to fight even a moderate downturn. Tax cuts are not an effective option, as we just saw the biggest tax cut in decades, all of which was bestowed on the wealth class. And interest rates, already near zero, cannot effectively be lowered any further.
Instead, Federal Reserve money printing of one form or another will be the tool used in response to a rapidly declining economy. https://www.cnbc.com/2019/05/28/next-downturn-could-see-radicalization-of-policies-used-last-time.html
Money printing is of course, inflationary. In response to the 2008 recession, the Fed’s quantitative easing (i.e. money printing) created our current real estate, stock, and bond bubbles. Too bad it did nothing to affect the real economy, helping companies like JCPenney.
I don’t pretend to have a crystal ball to say exactly “when” this economy falls off the proverbial cliff. All I can say for certain is that we are moving closer to the edge, and that the cliff has a long drop when we fall off. I thought we would be there by now, and for those in the retail industry, you already are there! So for the time being, I will just state that the conditions indicate the inflationary slowdown will be arriving to your town very soon. Be prepared!