“I’d say pour one out for retail but you would have to use the whole bottle…” – Jeff

 

Hey there carnivores,

Markets were up on Friday marking a two day streak.

And today we’re talking about another retailer filing for bankruptcy.

Keep raging,

Jeff & Jason

 

 

 

Another one bites the dust

J.C. Penney filed for bankruptcy on Friday, following the lead of Neiman Marcus, J.Crew, and Stage (a department store), as the coronavirus claimed another victim. Turns out JCP did have some pre-existing conditions

The retailer has been in business for 118 years and was able to survive the Great Depression, two World Wars, and the fashion trends of the eighties… but not COVID-19. 

So what happened?

The Chapter 11 filing, which will allow the retailer to stay afloat while it figures out how to pay its bills, started long before March. JCP hasn’t seen an annual profit in over a decade (is that bad?) and its sales, which were $10.7B last fiscal year, have fallen each of the past five years. Not ideal! 

It certainly didn’t help that it failed to shore up its finances like others. Retailers like Gap and Nordstrom raised cash through debt offerings to get through these shutdowns.

JCP currently has $8B in debt (compared to $8.6B in assets) that it owes to 100k+ creditors, and hopes to reduce its debt total by $7B through the bankruptcy. If JCP doesn’t hit certain milestones and finalize a business plan by July 15, it won’t receive its full bankruptcy package and must put itself up for sale.

The plan

JCP raised $900M via a restructuring package, of which $450M will come from existing lenders. It plans to use the fresh capital to close and sell off an unknown number of its 850 stores (our early estimates are between 1 and 850). As a part of the financing agreement, it will look at ‘strategic alternatives’, such as a third-party asset sale. 

Part of the bankruptcy proposal is to spin its real estate (which is valued at $1.4B) into a publicly-traded real estate investment trust (REIT). The REIT would collect rent checks from the retail business… which is a similar strategy SEARS used in 2015. And look how well that’s gone…

The bottom line…

But JCP isn’t alone…

Retail sales fell 16.4% in April, which is the kind of record you don’t want to be setting. Clothing stores fell the furthest, down 78.8%, beating an already dead horse.

If this shutdown continues, JCP certainly won’t be the last to fall. Younger shoppers (cue the ‘blame millennials’ headline) have chosen to shop elsewhere, like on the interwebs at Amazon and at bargain stores like TJ Maxx and Nordstrom Rack.

 

 

☑️ Passed out.

On Friday night, the House passed the $3T stimulus package that it was working through last week by a narrow margin of 208 to 199. The bill includes $1T of aid directly to states and localities. No, Harvard, you are not a “locality.”

And some good news for the unemployed (well, kinda)… the new bill includes another one-time stimulus payment and extended unemployment benefits. 

Now it’s off to the Senate, and Mitch McConnell where things are likely to come to a dead stopGotta love politics in the face of a crisis.

☑️ I love goooooold…

But Warren Buffett does not, apparently. The Oracle’s Berkshire Hathaway sold off most of its stake in Goldman Sachs *gasp* after the investment bank shed 33% of its share price during Q1. In total, Berkshire cut its GS stake by 84%, worth roughly $330M. And when the Oracle loses faith in you, you lose faith in yourself. 

It doesn’t appear to be personal as much as it was Berkshire cutting some fat. The conglomerate also sold off 3% of its stake in JPMorgan and even took some of its Amazon holding off the table (only .7%, but still).

The one investment Berkshire increased? PNC Bank… which Goldman was rumored to be interested in buying last week. We see you Warren…

☑️ Conn artist.

Unfortunately for suppliers, sh*t flows downhill. Foxconn, the largest manufacturer of goods for Apple saw its revenue fall 90% year-over-year for Q1. Anybody ever heard of customer diversification? 

Most of Foxconn’s production sites, which are based in China, have gotten back to normal operations. Now, the company has to hope the demand returns.

☑️ Let’s get high.

Aurora Cannabis’s stock price jumped nearly 70%. Aurora announced that its revenue in fiscal Q3 reached C$75.5M topping analyst estimates of C$66.7M. Canadian weed is one hell of a drug, apparently. 

Analysts attribute the jump to Aurora’s dismal expectations from analysts as the stock is down 89% within the past 12 months. Some analysts are making upgrades now, hoping the stoner gets its act together. Shares closed at C$15.35 in Toronto on Friday (or $11.20 in America). 

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

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