The fate of J.C. Penney (NYSE:JCP) hangs in the balance with its fourth-quarter earnings report due to be released on Thursday, February 28. CEO Jill Soltau has a limited window of opportunity to show there is still a future for the retailer, and if the results don't indicate that there's a glimmer of hope it can turn itself around, the event could be the beginning of the end.

With everything on the line, let's take a look at what investors should watch for to see if J.C. Penney can move forward, or if it will go under.

Woman picking up online order from J.C. Penney

Digital sales may be the one glimmer of hope J.C. Penney has. Image source: J.C. Penney.

A lump of coal in its stocking

It's not likely J.C. Penney's fourth-quarter earnings are going to look encouraging on the surface. The Christmas shopping season was one of the strongest in recent memory for many retailers, yet J.C. Penney reported that its holiday sales were lower than last year. And that happened as Sears was doing a swan dive into bankruptcy as its customers fled.

J.C. Penney and Sears often occupied many of the same malls, so theoretically, customers leaving the one retailer could have gone to the other. That, in fact, was one of the reasons J.C. Penney brought back appliances after a 30-year absence. Knowing that Sears was winding down, it hoped to capitalize on the void being created, but as the recent announcement that J.C. Penney was abandoning appliances once more makes clear, that never happened.

Similarly, J.C. Penney sought to take advantage of the demise of another iconic retailer, Toys R Us, by expanding its selection of toys. While J.C. Penney is still going to be selling toys, just about every other retailer also expanded their toy selection, so it's doubtful there was an appreciable uptick in toy sales for J.C. Penney.

Check out the latest J.C. Penney earnings call transcript.

Pulling on the thread

The retailer is now going to be focusing on apparel and soft home furnishings, but there are problems with this strategy, too.

Just as former CEO Marvin Ellison brought back appliances because that was where his competency lay from years of running Home Depot stores, Soltau is concentrating on soft goods because that's what she knows from her tenure at both Shopko and JOANN. Yet these segments of the retail market are highly competitive, and retailers like Kohl's have been killing it when it comes to targeting these lines. Yet even Kohl's Christmas sales were unimpressive.

J.C. Penney has yet to articulate how it will stand out from the competition. It may play to its strengths, but when you're the 90-pound weakling repeatedly getting sand kicked in your face, that's not saying much.

However, if it can convince customers there is a reason to shop at its stores again, it could be successful, because apparel and such carry better profit margins than appliances. Unfortunately, it's a big "if" for the retailer. It's not something we'll be able to see gain traction right away anyway, and by then, it may be too late.

Taking it online

Another indicator of the direction J.C. Penney will take will come from how customers responded to its digital efforts. Walmart (NYSE:WMT) just reported earnings results that should have given even Amazon.com pause: Whereas the e-commerce giant has seen growth slow of late, Walmart said its own online sales grew 43% in the fourth quarter, helping it handily beat Wall Street's top- and bottom-line expectations, as well as seeing comparable-store sales growth exceed estimates.

It's not likely J.C. Penney is going to be seeing such across-the-board superlatives, but if it can show that the investments it has made in its digital presence are paying off, it could show a path forward for the retailer.

The clock is counting down

Soltau had an unenviable task when she took over J.C. Penney. She basically needed to climb into the cockpit of a plane in the middle of a death spiral and somehow get it airborne before it crashed.

Such circumstances require drastic measures be taken. Whether abandoning appliances and focusing on apparel is a dramatic reversal or merely more of the same that got it to this position remains to be seen, but investors will soon have a better idea of whether the retailer's new CEO can gain control of the steering wheel, or if they'll need to put on their parachutes and bail.