What happened

Shares of J.C. Penney (JCPN.Q) were tumbling today for the second day in a row. On Monday, when the ailing department store's stock gave up 5.6%, it largely was due to the broad-market sell-off on news of the deteriorating trade situation with China. But today's decline came on a morning when the S&P 500 was up slightly, signaling that J.C. Penney investors were skittish for reasons beyond the China saga.

As of 11:26 a.m. EDT, the stock was down 6.9%.

The entrance to a J.C. Penney store.

Image source: J.C. Penney.

So what

It's unclear what percentage of J.C. Penney's inventory is made in China, but for most retailers it's substantial. And there's little reason to believe that Penney would be any different since China has made itself the hub of global apparel manufacturing over the last generation. If the trade war escalates, tariffs expand, and import tax rates increase, retailers like Penney are likely to suffer. Either they will have to pay more to import merchandise or move their supply chain out of China.

Moreover, Penney shares seem to be falling for the second day in a row due to investor panic over the company's viability as going concern. Shares have been trading below $1 since July 19, and the stock is at an all-time low now at $0.63. If it stays below $1 for more than 30 days, it will receive notice from the New York Stock Exchange that it is out of compliance with its standards, forcing the company to do a reverse split or come up with another plan to avoid being ejected to the pink sheets.

That process is likely to spark a further sell-off, and with the stock at its current level, a recovery to more than $1 seems highly dubious, barring anything short of a blowout second-quarter report when it comes out on Aug. 15. The stock would need to gain more than 50% to move above the dollar mark.

Now what 

J.C. Penney is unprofitable under generally accepted accounting principles (GAAP), and is bleeding sales. It faces a $4 billion debt burden and mounting competition from Amazon.com and the like. The rats are scurrying off the ship; pretty soon, the only value left in the company will be for salvage.