J.C. Penney (NYSE: JCP ) fell nearly 5% at the open this morning before bouncing back somewhat, down about 2% as of 3:25 p.m. EDT after yet another Wall Street analyst cut its views on the ailing retailer. BMO Capital Markets lowered its call on the stock from "market perform" to "underperform" and slashed its price target on the stock from $18 to $12, implying that the firm sees about another 20% of downside from current levels.
The problems that J.C. Penney faces are well-known. Having suffered a long history of having to discount merchandise dramatically in order to move it out the door, J.C. Penney decided to bring in CEO Ron Johnson in an effort to change that losing strategy. Johnson's response was to force discount-addicted shoppers to go cold turkey, giving up on the discount model in exchange for a massive reworking of the company's entire image, from renovating its home-furnishings department to rolling out new shop-within-a-store concepts aimed at driving excitement and repeat visits from customers.
Running out of time?
So far that strategy hasn't produced good results. It's arguably unfair to expect such a massive turnaround to have an immediate impact, but investors must be nervous about the big capital expenditures J.C. Penney is making in a gamble for the company's entire future. Now the company has started to cave, reintroducing some minor promotions that have an eerie resemblance to the discounting it used to do more freely.
Meanwhile, overhanging J.C. Penney's changes is a legal battle with Macy's (NYSE: M ) over its deal with Martha Stewart Living (UNKNOWN: MSO.DL ) . As it's still uncertain whether J.C. Penney will ever get to put a single Martha Stewart item in its collection, major investor Vornado reportedly sold a 10 million-share block of its stake in J.C. Penney amid the pessimism surrounding the stock.
What's increasingly clear is that investors on Wall Street and shoppers on Main Street are losing confidence in J.C. Penney's business strategy. The retailer needs to make a final decision on its future strategy soon and then dedicate all of its resources to making it work, or else the exodus of both investors and shoppers will continue.
So far, though, J.C. Penney has simply been unable to engineer a convincing comeback, and investors are no longer certain that Johnson can weave the same magic he did in previous jobs. To get the latest insight from our top Motley Fool analysts on whether J.C. Penney is a buy today, you're invited to claim a copy of the Fool's must-read report on the company. Learn everything you need to know about the company; simply click here now for instant access.