Retailer J.C. Penney (NYSE: JCP) is set to report its first-quarter earnings tomorrow. And judging by analysts' estimates, things don't look great. On average, analysts expect the retailer to post a loss of $0.10 a share, way down from the year-ago quarter's profit of $0.30. Revenue is expected to be around $3.48 billion, a significant 12% drop from last year.

To top it all, the stock has lost around 20% of its value in the past three months. So why the overall pessimism surrounding the stock? Let's delve a little deeper.          

A whole new feel
 The arrival of CEO Ron Johnson last year has marked the start of a transformation of sorts at Penney's. The man behind the transformation was instrumental in creating the "Apple experience" at Apple's retail stores. Everyone hoped he could do the same at struggling retailer Penney's and initiate a revival. I had earlier spoken about his plans to turn Penney's stores into mini towns with an area supposed to house 80 to 100 brands named "Main Street" and also an area specifically designed to cater to customer needs called "Town Square" -- much like the renowned "Genius Bar" concept at Apple, which Johnson was responsible for. The new get-up definitely sounds exciting, but will it be enough to entice customers back into their stores?

The price is right
What's even more important is that Penney's has resorted to a new pricing strategy. Under this plan, Penney's will offer everyday low pricing as well as promotional offers at its counters. Plus, there would be clearance sales on the first and third Fridays of every month. This contrasts with their former slash-and-burn pricing strategy.

Most analysts feared that this plan would alienate Penney's faithful customers, especially those who look for the retailer's famed daily discounts, and it seems their fears are not totally unfounded. Peer Macy's (NYSE: M), which recently came out with its earnings, hinted that it was gaining from Penney's "non-promotional price streamlining." The plan is clearly not working in favor of Penney's. In fact, I had earlier warned that reinventing might be a risky strategy for J.C. Penney.

I'm not fully convinced
In a recent annual filing, the company noted that the new pricing policy "could result in a prolonged decline in sales." It even went on to add that there is "no assurance that we will be able to successfully implement these strategic initiatives."

There seem to be too many questions that Penney's will have to answer this quarter, and hopefully we'll get an update regarding the progress of its transformation. I expect the company to report losses in the coming quarter, with its top line and share prices sliding as well.

At the same time, I think we should still give Johnson a few more quarters to work his magic. After all, a complete overhaul is no easy task, and it'll probably take some time to establish the all-new J.C. Penney. Till then, I suggest we all play the wait-and-watch game. Do you agree?

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