To say that department store chain J.C. Penney had a rough year in 2018 would be an understatement. Comparable sales dropped 3.1%, with an even worse decline in the fourth quarter. The company lost $296 million on an adjusted basis, down from a small profit in 2017. Some progress was made improving the balance sheet, but the company is still sitting on $4 billion of debt and capital leases.
One silver lining: J.C. Penney managed to produce positive free cash flow in 2018, and it expects to produce positive free cash flow in 2019 as well. That’s a sign that the company will be able to further reduce its debt load and, at least ostensibly, that the situation may not be quite as dire as it seems.
New CEO Jill Soltau has already made some big changes, like dumping the ill-fated appliance business. But one thing that hasn’t changed is J.C. Penney’s wonky definition of free cash flow. The retailer conveniently adds in proceeds from operating asset sales, juicing what’s supposed to be a measure of cash generation from the business.
J.C. Penney’s actual operations were not free cash flow positive in 2018. And they probably won’t be free cash flow positive in 2019.