J.C. Penney Co. said a New York Post article on Wednesday reporting that commercial lender CIT Group Inc. had halted funds to some of its suppliers is untrue.
In a statement Thursday, J.C. Penney said that CIT "continues to factor and support deliveries" from the department store chain's vendors. The Plano, Texas, retailer said it heard as much directly from CIT.
J.C. Penney, which has been fighting to recover from a failed turnaround initiative, also said it "continues to have ample liquidity to manage its business."
The New York Post story, which cited anonymous sources, said CIT "abruptly stopped financing deliveries from smaller manufacturers to Penney stores." J.C. Penney stock plunged 10% Wednesday to its lowest close since April, when its embattled chief executive, Ron Johnson, relinquished his post.
J.C. Penney shares recovered Thursday, rising 3%, or 44 cents, to $15.04 a share in midday trading in New York.
CIT is a major commercial lender for apparel companies such as J.C. Penney, which has some 1,100 stores in its system. Last year, it cut off financing to some suppliers for Sears Holdings Corp., another wobbly retail business.
In a note to clients Wednesday, Macquarie Capital analyst Liz Dunn wrote that likely less than 10% of J.C. Penney's purchases are factored by commercial lenders, of which CIT is the largest. Without loans from such companies, J.C. Penney would have to pay cash up front for goods, which Dunn estimated would cause a $300-million drag on free cash flow.
On Thursday, the retailer said CIT backed less than 4% of its inventory for the year. J.C. Penney also said it expects to close the second quarter with $1.5 billion in cash on its balance sheet.
The company is expected to report its earnings in mid-August, providing the first complete picture of whether new Chief Executive Myron Ullman's strategies are helping the struggling business. In May, J.C. Penney reported its fifth straight double-digit quarterly sales slide.
Dunn said she expects the disclosures to show a $550-million cash flow burn.
On Thursday, closing arguments began in the months-long legal battle between J.C. Penney and rival Macy's over the right to sell home goods from domestic diva Martha Stewart.