Best Buy holiday sales fall, bonds weaken; J.C. Penney debt softer on job cuts, store closures

By Stephanie N. Rotondo

Phoenix, Jan. 16 - Distressed debt investors were wearily eyeing the retail sector on Thursday, as yet another round of weak holiday sales results were reported.

This time, the poor showing came from Best Buy Corp.

"We were surprised by the market decline," said Hubert Joly, chief executive officer, during a conference call held Thursday morning. "Everybody expected it to increase by 2% or 3%, but it declined by 2%."

On top of Best Buy's weak results, J.C. Penney Co. Inc. announced late Wednesday that it was cutting more jobs and closing more stores in order to return to a profit. That news came on the heels of last week's holiday sales update, in which the company said it was "pleased" with the results, but failed to provide any actual data to back up their optimism.

Best Buy sales disappoint

Best Buy took a hit Thursday after the electronics retailer reported dismal holiday sales results.

A trader saw the 5% notes due 2018 fall nearly 2½ points to 1021/2, while the 5½% notes due 2021 lost over a point to end around 991/4.

He noted that the latter issue hit a low-tick of 98 during the day's session.

"The stock was down 27% or so and the bonds got hit pretty hard too," he said.

The stock (NYSE: BBY) closed at $26.83, down $10.74, or 28.59%.

Same-store sales dropped 0.8% for the nine weeks ending Jan. 4. Total revenues slipped a touch to $11.45 billion versus $11.75 billion the year before.

There was, however, one bright spot, in that online sales increased 23.5% year over year.

The company attributed to sales decline in part to "significant store traffic declines" and disappointing cellphone sales.

J.C. Penney debt softens

Best Buy wasn't the only retailer taking it on the chin on Thursday. J.C. Penney debt was also weaker following news the company was planning massive job cuts and store closures.

A trader called the 6 7/8% notes due 2015 off a point at 93, while the 7.4% notes due 2037 dropped half a point to 711/2.

Another market source placed the 5.65% notes due 2020 at 76½ bid, down nearly a point.

In yet another step of the Plano, Texas-based company prolonged turnaround plan, J.C. Penney said late Wednesday that it was cutting 2,000 jobs and shuttering 33 underperforming stores. In closing the stores, the company expects to save $65 million per year.

The closures are expected to take place by May.

NII gains, Verso dips

In other recently topical names, NII Holdings Inc. bonds remained active and better.

The 7 5/8% notes due 2021 rose half a point to 431/4, while the 8 7/8% notes due 2019 increased slightly to 463/4.

The 10% notes due 2016 ended up a deuce at 601/4.

The bonds began to run up earlier in the week when the company announced a network-sharing agreement with Telefonica.

Meanwhile, Verso Paper Corp. came in a little, after running up in the previous week on news of a merger with NewPage Corp.

The 8¾% notes due 2019 fell 1½ points to 50 and the 11¾% notes due 2019 slipped almost a point to 108.

More GSE reform

Fannie Mae and Freddie Mac issues dominated trading in the preferred world on Thursday.

According to a market source, the preferreds were again getting bandied about because a group of House members came out and stated that they wanted to put together a new bill on GSE reform.

"I guess the other five weren't good enough," the source quipped.

As the source explained it, the "market took [the outline of the new bill] to be that GSEs would be corporate entities" and that the existing preferreds would either have to get taken out or start paying out dividends again.

"But I don't think that's what [the House members] were thinking," the source opined.

Regardless, the agencies' shares moved higher.

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) saw trading of over 14.5 million shares as the preferreds rose 50 cents, or 5%, to $10.50. Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) climbed up 55 cents, or 5.56%, to $10.44.

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