Helping to save the environment and endangered species is certainly a noble task, but for J.C. Penney (NYSE:JCP), the endangered species it should focus on saving is itself. If the retail chain goes belly up, it isn't going to help anybody -- except maybe its competitors. SolarCity (NASDAQ:SCTY.DL) is teaming up with Wal-Mart (NYSE:WMT) to reduce its carbon footprint and energy costs, but Wal-Mart is going about it the right way. J.C. Penney needs to hang onto every dollar it can in the short-term instead of undertaking long-term projects that don't add to the bottom line now.
On Oct. 31, J. C. Penney announced that 500 of its locations earned "ENERGY STAR certifications" from the EPA. A number of its stores have earned this award for five years in a row.
While this may help add a few customers, it's hard to imagine it will have a meaningful net financial impact for years to come. J.C. Penney saves "thousands" of dollars in energy costs each year, but its upfront capital costs and interest are adding to its own short-term financial problems. This is a company that shelled out $95 million in interest expenses last quarter alone on billions of debt, and it's bragging about investing millions more to save thousands.
Running out of money
J.C. Penney last predicted it would end the quarter with $1.3 billion in available liquidity. This was lowered by $200 million from the previous forecast it made just a month prior. Analysts expect net losses to continue to pile up. Last quarter, it reported that sales dropped by 11.9%. Adjusted net loss was a staggering $477 million, or $2.16 per share. This is not pretty. The last thing J.C. Penney should be doing is spending precious resources on fighting global warming and energy-reducing projects that won't provide financial benefits for years to come, if the company even survives that long.
J.C. Penney has successfully reduced its energy use by 17%. Now it is targeting a total of 20% reduction by 2015. Again, this is great on its face. However, this means J.C. Penney fully intends to continue to hemorrhage cash going forward in order to achieve this target.
Meanwhile, Wal-Mart and SolarCity have the right idea. SolarCity offers solar panels to customers like Wal-Mart with no upfront payment. SolarCity maintains ownership of the solar panels and sells the electricity generated back to customers like Wal-Mart at a discount compared to conventional energy. This allows energy and cost reduction goals to be met without using up precious resources.
Wal-Mart is highly profitable but it has its own pile of debt and interest expenses to deal with, so the move is smart on its part. Perhaps J.C. Penney should follow in Wal-Mart's footsteps; if it's going to insist on battling global warming, at least it could do it in a manner that actually is financially beneficial to its shareholders and reduces cash burn immediately instead of increasing it.
Final foolish thoughts
While it's highly doubtful that J.C. Penney's energy-savings projects themselves will bring down the retailer, they add additional cash outlays in combination with its other money-losing operations and interest expenses. Management needs to focus on bringing its sales up first and foremost and not being distracted by side projects.
J.C. Penney is not in a position to invest more capital for long-term benefits when its survival is at stake. This may be a symptom of sloppy and wasteful management decisions. Study the upcoming earnings report to see if J.C. Penney has made any progress in its wasteful spending. J.C. Penney needs to get its own house in order before it worries about saving the planet.
Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.