NEW YORK, N.Y. - J.C. Penney Co. said Wednesday it has secured a $2.25 billion loan, $500 million more than it had expected, as it tries to stop a collapse in its sales.
The expanded financing deal with Goldman Sachs comes as the Plano, Texas-based retailer has been burning through cash and struggling to win back customers. An overhaul plan spearheaded by its former CEO Ron Johnson had backfired and caused sales to plummet.
The company last month fired Johnson after 17 months on the job and brought back Johnson's predecessor, Mike Ullman, to take over the top spot. UIlman is bringing back sales and coupons and basic merchandise that were eliminated under Johnson's regime.
Johnson's strategy led to massive financial woes at Penney. The company reported last week that its first-quarter loss widened as revenue dropped 16 per cent. It was the fifth-straight quarter that the company had posted large sales declines. Penney lost almost $1 billion last year and its revenue dropped 25 per cent to $12.98 billion.
"This new funding gives us the financial flexibility to pursue our plans to put the company back on a path for profitable growth," said Ken Hannah, Penney's chief financial officer in a statement.
Ullman is restoring merchandise like khakis and key store brands like St. John's Bay that were dropped by Johnson, who was seeking to grab a younger, wealthier shopper but ended up alienating Penney's loyal middle-income base.
Penney is also in the midst of transforming its home area that includes shops devoted to such designers as Jonathan Adler and Michael Graves. The new home area is expected to be rolled out to 500 of the chain's 1,100 stores by early June. The costly makeover was part of Johnson's plans to carve up the stores into mini-boutiques.
On April 29, Penney had announced that Goldman Sachs would provide it with $1.75 billion in financing. The five-year loan announced Wednesday will be used to fund the company's operations as well as pay off some of its debt. It will be secured by real estate, as well as an interest in the company's other assets and some of its subsidiaries.
Shares rose 3 cents to $18.75 in after-hours trading after falling 26 cents to $18.72 in regular trading, off 29 per cent over the past 12 months. Penney announced the loan after the stock market had closed.