JCPenney's (OTC:JCPN.Q) stock recently rebounded from historic lows after it hired Jill Soltau, the former president and CEO of crafts and fabric retailer Joann Stores, as its new CEO. Soltau also previously worked at Shopko Stores, Kohl's, Sears (NASDAQ:SHLDQ), and Carson's. JCPenney's previous CEO, Marvin Ellison, abruptly resigned in May to take the CEO position at Lowe's

After Ellison's departure, JCPenney hastily created an "Office of the CEO" group that included included CFO Jeffrey Davis, Chief Customer Officer Joe McFarland, Chief Information Officer and Chief Digital Officer Therace Risch, and Supply Chain and Private Brand Chief Mike Robbins. However, McFarland resigned in July and followed Ellison to Lowe's, and Davis resigned in early October.

A JCPenney store.

Image source: JCPenney.

That left the "Office of the CEO" with just two of its original members, and the company without a permanent CEO or CFO. That's why investors breathed a sigh of relief when the company hired Soltau as its permanent CEO. However, Soltau still faces an uphill battle in fixing the troubled retailer.

What Soltau needs to fix

JCPenney has lost 95% of its market value over the past decade as competition from superstores, the growth of e-tailers, and a big drop in mall traffic disrupted its business model. A series of terrible decisions by former CEO Ron Johnson between 2011 and 2013 exacerbated the decline.

Ellison, who took over as CEO in 2014, tried to boost JCPenney's sales by expanding its home goods department, launching new private-label brands for women, and adding more store-in-stores for Sephora, salons, specialty apparel brands, and athletic apparel. The company also aggressively expanded its e-commerce ecosystem and revamped its Rewards loyalty program.

Those moves stabilized JCPenney's revenue growth, but the company still couldn't generate consistent comps growth without relying on margin-crushing promotions. That's why Wall Street expects the retailer's revenue to fall 2% this year as it posts a full-year loss. To make matters worse, the Trump administration's decision to hike tariffs against Chinese goods will cause JCPenney's average prices to rise -- which will cause even more pain.

JCPenney reported a negative free cash flow of $235 million in the first six months of fiscal 2018, and finished the second quarter with just $182 million in cash and equivalents. Those figures pale against its $3.96 billion in long-term debt. JCPenney isn't in the same boat as Sears yet, since it can easily cover the $42 million in current maturities on its long-term debt. JCPenney also isn't posting double-digit comps declines like Sears -- it merely expects its comps to stay flat this year.

A group of young adults holding shopping bags.

Image source: Getty Images.

JCPenney shuttered 141 stores last year, but it still operates over 840 locations across the United States and Puerto Rico. Therefore, if things get worse for JCPenney, it can still close more stores, prune its workforce of 98,000, or consider other methods of monetizing more of its real estate (like selling prime locations and leasing them back) to boost its cash flow.

Can JCPenney be saved?

JCPenney's track record raises deeply troubling questions about the company's future, but there are a few reasons to be optimistic.

Soltau could also try to transform JCPenney into an off-price rival to TJX Companies and Ross Stores, which both sell off-season products at lower prices than Amazon. That's a long shot, but it could save JCPenney from going head-to-head against Amazon and Walmart. Soltau could also continue focusing on women's apparel and athleisure apparel, as Ellison did, while expanding the company's e-commerce ecosystem. Soltau also has experience with private brands at her previous jobs -- which could bode well for JCPenney's push into private label apparel.

With an enterprise value of just $4.6 billion, JCPenney is still a potential takeover target for several companies. One potential suitor is Amazon (NASDAQ:AMZN), which significantly increased its brick-and-mortar presence by buying Whole Foods Market last year. Amazon also reportedly plans to open up to 3,000 cashierless stores across America by 2021.

Buying a dying brick-and-mortar retailer like JCPenney might seem like a bad move, but Amazon could shutter most of its stores and convert them into showrooms for its own products, cashierless stores, or fulfillment centers. Acquiring JCPenney's network of stores could also widen Amazon's moat against Walmart, which is using its brick-and-mortar stores as fulfillment centers.

The bottom line

JCPenney is in serious trouble, and another recession could easily capsize this rudderless retailer. However, investors shouldn't call it the next Sears yet. If Soltau takes a radically different approach from her predecessors, the stock could still rebound from these historic lows.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.