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What: J.C Penney (NYSE:JCP) shares were getting rocked again today, falling as much as 11%, its third straight double-digit movement, after announcing a secondary share offering last night.
So what: With more than $2 billion in free cash flow losses over the last two quarters, the struggling retailer announced it would sell an additional 84 million shares at $9.65 with an option to sell 12.6 million more to shore up its finances. The offering would raise as much as $932 million, and will dilute current shareholders by about 40%. Penney had more than $1.5 billion in cash on its balance sheet as of Aug. 3, but with losses piling up and the need to build inventory for the holiday season, management felt it needed an additional cash cushion, though it's said the cash wouldn't be needed this year.
Now what: With shares trading at a 13-year low, the decision to sell more seems like an odd one. While it avoids incurring additional interest expense and adding to the company's $5 billion debt burden, management would have been better off making the move when the stock was still trading in the teens. The sale will buy the company more time in its turnaround effort, but time is no guarantee, as recent financial results have been atrocious. Long-term viability seems unlikely, and even if management can pull off the turnaround, I'd expect shares to go lower before they bounce back.
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