After 118 years in business, JCPenney has filed for bankruptcy protection, saying the coronavirus pandemic has “wiped out” the progress it had been making in its “Plan for Renewal” transformation strategy.

The iconic retailer entered the Chapter 11 process after reaching a restructuring agreement with creditors that it said will reduce its $5 billion debt load and provide increased financial flexibility to help navigate the pandemic.

Even before the coronavirus, JCPenney had been considered a candidate for bankruptcy after several years of declining sales and strategic missteps. Now as CNBC reports, it faces the challenge of executing a turnaround during a pandemic that has forced it to close its brick-and-mortar stores.

According to CFO Bill Wafford, year-over-year net sales tumbled by 88% in April and store sales declined to nearly zero.

“When retailers are prohibited to have people come into the store, it’s hard to make money,” U.S. Bankruptcy Court Judge David Jones said at a hearing on Saturday.

The company said its restructuring plan has the support of lenders holding about 70% of its first lien debt and would create two separate entities — an operating company and a real estate investment trust.

“The plan … will accomplish what the company has been trying to do since mid-2019: eliminate the nearly $5 billion in debt burdening the company and preventing the ‘Plan for Renewal’ from flourishing,” Wafford said in a court declaration.

Under CEO Jill Soltau, JCPenney has, among other things, reemphasized core merchandise such as women’s apparel. According to Wafford, it had been making “meaningful progress,” with same-store sales improving sequentially in six of eight merchandise divisions in the second half of 2019.

“Unfortunately, that progress was wiped out with the onset of COVID-19,” he said, citing the pandemic as the “ultimate reason” for the Chapter 11 filing.

JCPenney has secured $900 million in bankruptcy financing but will only receive the second half of the funding if it meets certain financial milestones.

“At the end of the day, I think they’ll be liquidating their assets to get some cash back to creditors,” Camilla Yanushevsky, an analyst for CFRA Research, told USA Today.

Paul Hennessy/SOPA Images/LightRocket via Getty Images

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