The last few years have been tough for J.C. Penny (JCP). A few years ago, a failed shift in strategy almost sent the retailer to its grave, and since then, JCP has been carrying around a high debt load. Over the last year, the troubled retailer has been making drastic cost-cutting measures and has finally improved its free cash flow. Here are two things J.C. Penny is doing to slash costs.
1. Targeting Interest Expenses
With a high debt load, JCP is incurring over $400 million in interest expenses each year. To reduce interest costs, the retailer announced that it is looking to refinance a loan worth $2.2 billion that was issued in 2013.
As of April, the company had $2.19 billion outstanding on the loan. Reports indicate that JCP is only looking to refinance $2 billion, but the move could save the company $10 million in interest expenses each year.
2. Paying Down Debt a Little at a Time
The company started reducing its debt load last fall. After its second straight year of positive free cash flow, JCP paid off its $500-million asset-backed loan. It also boosted its revolving credit line to $500 million to preserve its liquidity.
These two moves will reduce the company’s interest expenses by $20 million annually.
Ed Record, CEO of the company, said JCP also has plans to pay down another $400-$500 million of its debt in 2016 by selling its headquarters complex, which is located in Plano, TX.
J.C. Penny is also planning to pay off $78 million in high-cost debt. Next year, the company will have the opportunity to retire $220 million in debt with a hefty interest rate of 7.95%. If all of these moves play out, the retailer may be able to reduce its interest expenses to last year’s level of $70-$80 million, which would push the company back toward profitability.
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