J.C. Penney files for bankruptcy and plans to close a number of stores

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J.C. Penney, an iconic retailer founded in 1902 in Wyoming, has filed for Chapter 11 bankruptcy protection, slammed by years of dwindling sales, a huge debt burden, and a pandemic that has closed stores for weeks.

The department store chain said on Friday it had landed $900 million in debtor-in-possession financing to ensure operations continue while it wields its way through bankruptcy. Penney said it would close an unspecified number of stores in its 850-store fleet—media reports have suggested that number is 200. Net losses for the company totaled $4.2 billion between 2011 and 2019.

The bankruptcy is a stunning fall from grace for a retailer that at one point was surpassed only by Sears in size and importance in American life.

The filing was voluntary and supported by lenders holding approximately 70% of J.C. Penney’s first lien debt. The bankruptcy will erase several billion dollars of Penney’s indebtedness and help it navigate the enormous hit to sales stemming from the COVID-19 pandemic. Penney’s long term debt stood at $3.6 billion as of the end of February. The case will be overseen by federal bankruptcy court in Corpus Christi, Texas.

While the company has been struggling for years—net sales in 2019 were $10.7 billion, down from $19.9 billion in 2007—and has failed to reinvent itself enough to keep shoppers despite many turnaround attempts in the last decade, chief executive Jill Soltau suggested the COVID-19 outbreak pushed it over the edge.

“The closure of our stores due to the pandemic necessitated a more fulsome review to include the elimination of outstanding debt,” said she said in a statement.

Though a few stores have reopened, with many offering curbside pickup for online deliveries, Penney’s business is still taking a big hit. Apparel and home goods, its two biggest categories, saw the biggest pullback in U.S. retail sales last month. In a sign of how hard the quarter has been, department store Dillard’s said this week its gross profit margin on merchandise had fallen by two thirds to 12.5%.

The Penney bankruptcy is the third high profile Chapter 11 filing in two weeks, following Neiman Marcus and J.Crew. Sears, its longtime rival, filed for Chapter 11 in late 2018, but its business has continued to shrivel, dampening hopes for Penney’s prospects. Green Street Advisors, a real estate research firm, said last week in a note that it expected Penney to eventually liquidate because of a business that has been adrift for years.

Penney said in its release that as part of the deal for the bankruptcy, it would explore a number of options including selling the company.

For now, as detailed in a Fortune analysis on Friday, Penney will have to figure out how to finally reconnect with customers that have long since defected to the likes of Target, T.J. Maxx, Ulta Beauty, and even Macy’s, its bigger and financially stronger though injured rival, at a time shoppers are dealing with a tough economy and are limited in ability to shop.

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