The global coronavirus pandemic has placed enormous pressure on even financially healthy businesses, but for ailing outfits like J.C. Penney (JCPN.Q) the outbreak could be the kiss of death.

Sales were in a tailspin before the outbreak began forcing state and local governments to issue must-close orders to retailers, restaurants, and shopping malls to halt its spread. Now, with consumers self-isolating when they're not fighting for hand sanitizer and toilet paper, the huge debt load J.C. Penney carries looks like an even heavier burden.

Empty shopping mall

Image source: Getty Images.

Dashing any glimmer of hope

The outlook was already bleak for the department store chain after it reported dismal Christmas sales. The fiscal third-quarter earnings report had left management hoping the holidays would give it some breathing room, but instead, the company saw comparable-store sales plunge 7.5% during the nine-week period ending Jan. 4, 2020. Even excluding the exit from the appliance and furniture categories, comps were down 5.3% year over year.

The company subsequently reported fiscal fourth-quarter net sales fell almost 8%, and adjusted comps were down 4.7%. While J.C. Penney touted a surprise quarterly profit, positive free cash flow, and $1.8 billion in liquidity at year end, management's 2020 guidance had comparable sales falling 3.5% to 4.5%. Its stock may be delisted well before then, though, as it has received its second warning that shares can't keep trading below $1 per share.

But that could be the least of its worries. It couldn't afford any missteps going forward, and the coronavirus is now wreaking havoc upon the industry.

Nowhere to turn

J.C. Penney has just $386 million in cash and short-term investments and over $3.7 billion in total indebtedness. Being so highly leveraged, the company is limited in its ability to obtain additional financing. 

During this pandemic, numerous large corporations have begun drawing down on their credit lines to ensure they're able to weather the crisis. Anheuser-Busch InBev recently maxed out its credit by drawing down $9 billion, as have Boeing, Hilton Worldwide, and British Airways parent IAG.

That's a luxury not available to J.C. Penney, and it is likely to face an extended cash crunch as retail sales dry up. It's not alone in this predicament, and though misery loves company, it's not particularly comforting that others may go under with it.

Not a solitary journey

Retailers including J.Crew and Neiman Marcus are in similarly dire straits, and the former is now considering rescinding the IPO of its Madewell denim business, because it performed so strongly in the fourth quarter.

Sales surged 13% from the year ago period, and comps jumped by a like amount, which has J. Crew considering using the company to prop up its ailing operations. Its own sales were down 2% during the period, though same-store sales did increase 1%.

That's given ratings agency Moody's some confidence J. Crew's return to profitability may help, but the debt load it carries still creates doubt, not to mention the uncertainty created by the pandemic. Over half of its inventory is dependent upon Chinese imports.

Neiman Marcus, which restructured its $4.7 billion debt last year, is especially vulnerable during the pandemic, because as much as 15% of its revenue is attributed to tourists.

A turnaround looks bleak

The coronavirus has tanked the stock market and could very well lead to an economic recession. Many are calling on President Trump to impose a broad, shelter-in-place order that would largely limit travel outside the home to buying essentials.

Air travel is plummeting; the hospitality industry is seeing vacancy rates rise; restaurants, bars, and casinos face closures; and only essential retailers are allowed to open in some areas. J.C. Penney itself has begun temporarily closing stores in some areas.

It has $2.3 billion in contractual obligations due in less than a year, $1 billion worth over the next one to three years, and over $2.6 billion worth over the next three to five years. 

Its finances were already under pressure, and even if the pandemic sweeps through in short order and consumers are allowed to begin the return to normalcy, there doesn't appear to be much hope this once iconic department store chain sees it through to the end.