Bloomberg News

J.C. Penney Cut to Junk by Fitch on Pricing Overhaul Concern

February 22, 2012

Feb. 21 (Bloomberg) -- J.C. Penney Co.’s debt was downgraded to speculative grade by Fitch Ratings on concern that the retailer’s overhaul of pricing and reduction of promotions will fail to lure shoppers.

Penney’s issuer rating and $3.1 billion of unsecured debt was lowered to BB+, one step below investment grade, from BBB-, New York-based Fitch said today in a statement. Secured bank debt totaling $1.5 billion was cut to BBB- from BBB.

Penney’s steps may not draw consumers, hurting efforts by the Plano, Texas-based department store chain to boost sales, Fitch said. Chief Executive Officer Ron Johnson told analysts last month his plan to introduce a three-tier price model and scale back discount promotions to 12 per year may triple revenue.

“Things are likely to get worse over the near term,” Monica Aggarwal, a Fitch analyst in New York, wrote in a note to clients. Revenue may slump in 2012 as Penney offers fewer sales in “a marked departure from the industry’s high-low promotional strategy,” she said.

Penney slumped 3.1 percent to $41.38 at 2:46 p.m. in New York. Before today, the shares had climbed 21 percent this year.

Standard & Poor’s, which also rates J.C. Penney at BB+, lowered the company to junk in April 2009.

--Editor: Shannon D. Harrington, Alan Goldstein

To contact the reporter on this story: Chris Burritt in Greensboro, North Carolina, at cburritt@bloomberg.net.

To contact the editor responsible for this story: Robin Ajello in New York at rajello@bloomberg.net.


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