PLANO, Texas (AP) — J.C. Penney says that CIT, the largest lender in the clothing industry, is still supporting deliveries from its suppliers. The department store operator also says it has ample liquidity to run its business.
Shares rose more than 7 percent in premarket trading Thursday.
On Wednesday, a New York Post report said that CIT Group Inc. had stopped providing financial support to small and large suppliers selling to J.C. Penney stores — for now. The report said CIT made the decision after meeting with J.C. Penney officials to examine the company's books.
J.C. Penney Co. said Thursday that CIT assured it that the newspaper report is untrue.
CIT is what the industry calls a "factor," which makes cash advances to suppliers based on the goods they sell to the merchant. If vendors and factors become wary of a store's creditworthiness, the retailer may have to pay suppliers cash upfront for goods, which could be a huge drain on liquidity. If suppliers stop shipping goods, it can be a death knell for a retailer.
Plano, Texas-based J.C. Penney said that merchandise from CIT-supported suppliers currently makes up less than 4 percent of its overall inventory for the year.
J.C. Penney said that it still has the support of all of its key vendors, which are continuing shipments to the company. The retailer, which has 1,100 stores, anticipates closing the second quarter with about $1.5 billion in cash on its balance sheet.
Shares climbed $1.09, or 7.5 percent, to $15.69 in premarket trading about two hours before the market open
J.C. Penney is trying to reverse its fortunes after disastrous results under a failed transformation plan implemented by its former CEO Ron Johnson. Johnson was ousted in April after 17 months on the job. The board brought back former CEO Mike Ullman, who has reintroduced frequent sales and is bringing back key merchandise under store names like St. John's Bay.
Analyst Deborah Weinswig of Citi Investment Research says J.C. Penney won't see a recovery in its business until 2014. The analyst said in a client note that she's been surprised that "quick fixes," like bringing back coupons, hasn't led to stronger sales and doesn't think this will change in the near term. The analyst lowered the chain's rating to "Sell" from "Neutral" and cut its price target to $11 from $20.
J.C. Penney does not comment on analyst reports.