Despite the narrative of economic recovery currently circulating through the financial media, things are still tough on many American retailers. Fashion retailers especially are struggling, as many consumers remain low on discretionary income. While most retailers and department stores seem to be feeling the pinch, none seem to be in such dire straits as J.C. Penney (NYSE: JCP). With the retailer apparently hemorrhaging cash every which way, the future looks none too bright for it. Is the end finally drawing nigh for J.C. Penney?

Losses mounting
There's no real way to sugarcoat J.C. Penney's recent earnings history. The company has posted a loss for six consecutive quarters, missing estimates all along the way. The losses aren't shrinking, either. The embattled department store chain lost $2.16 per share in the second quarter versus a loss of $0.37 in the year-earlier period, almost twice as much as analysts had expected and down from a loss of $1.38 per share in the first quarter.

Whichever way you slice it, things look pretty grim. Comp-store sales were down nearly 12% for the second quarter, which, perhaps sadly, depending on how you look at it, was an improvement over the first quarter. Management expects this trend to continue into the back half of the year, but with the company's recent history of missing earnings, this very much remains to be seen with third-quarter earnings due on Nov. 19.

Gross margin fell to 29.6% from 33.2% a year ago, with the company's home division performing especially badly. A restructuring of this division is expected to be complete by the third quarter. This all wouldn't be so surprising if it were an industrywide trend, but the fact is, J.C. Penney's competitors seem to be doing rather well, or at least better.

Kohl's (NYSE: KSS) reported a 0.9% increase in comp sales for the second quarter, with revenue up 2% to $4.3 billion. While net income fell some 4%, the company managed to increase its earnings per share by 4% with its share-buyback program. Encouragingly, the company's e-commerce division is growing, with a 28% increase in sales over the year before.

Despite these quite robust numbers, the company tempered its full-year outlook somewhat. Looking ahead to the holiday season, Kohl's is looking to hire around 50,000 associates to ensure a high level of customer service during this high-traffic period.

The other major competitor, Macy's (NYSE: M), isn't doing too badly either. While second-quarter earnings of $0.72 missed the consensus by $0.06, EPS was up 7.5% compared to the year-earlier period. On the other hand, comp-store sales were down 0.8% but still clearly not showing as disastrous a decline as J.C. Penney's. Macy's early read on the back-to-school season looks good, with the company expecting an increase in sales of 2.5% to 4% for the second half of the year.

Pumping the cash
So, it seems as if the problem is very much J.C. Penney's own. Warning signs are popping up all over the place, as the company seems to be facing serious liquidity problems, to put it mildly. After securing more than $2 billion in cash earlier this year, the company is looking to tap another $1 billion in new capital, leading to a stiff downgrade from Goldman Sachs.

Assuming the company's executives aren't using $100 bills to light their cigars, this must mean there is something seriously wrong with the company's cash flow. Goldman, in fact, went so far as to warn of a possible bankruptcy in the works, recommending investors buy credit-default swaps on the company's debt as a protective measure.

This conflagration of bad news sent the stock tumbling around 15% on Wednesday for a fresh 12-year low. While no one is presumably clamoring to lend J.C. Penney another billion dollars, the firm does have some potential collateral left in the form of real estate and regional mall partnerships. While the future looks bleak for J.C. Penney, shorting may be risky business, with 43.7% of the float currently held short.

The bottom line
At J.C. Penney, things are bad and possibly getting worse, as the company is looking to tap another credit line to stay in business. With comp-store sales still on the decline, and the company underperforming the industry by more or less every measure, it seems as if a realistic pop would be due to a short squeeze. Analysts aren't expecting much for the third quarter, as some of them warn of impending bankruptcy.

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