What happened

Shares of J.C. Penney (JCPN.Q) were diving for the second time this week after the struggling department store chain received a warning from the New York Stock Exchange for being out of compliance with its standards. The NYSE requires companies listed with it to have an average trading price above $1 over a 30-day trading period. 

Penney's stock fell below $1 on July 19, and has stayed below the key benchmark since. Today, it fell another 12.1% and was trading at just $0.61 as of 11:58 a.m. EDT.

The entrance to a J.C. Penney department store

Image source: Getty Images.

So what 

While the news is troubling for J.C. Penney, it was not unexpected as investors seem to be rapidly losing faith in the company and its future. The retailer has been consistently unprofitable in recent years, on a generally accepted accounting principles basis (GAAP), comparable sales are falling, and the company faces a $4 billion debt burden, making it difficult for management to get the kind of financial flexibility that would help turn the business around.

Now, the retailer has six months to regain compliance with the NYSE, or until its next shareholder meeting if it chooses to enact a reverse split, a move that would lift the share price above $1, though it would not create any additional value for shareholders. Penney has 10 business days to notify the NYSE of its plan to return to compliance.

Now what  

The aging department store chain is far from the only consumer-facing stock in recent months to see its share fall below the $1 mark and therefore fall out of compliance with the NYSE. Both Blue Apron and Rite Aid were given similar warnings, and both elected to do reverse splits -- of 1-for-15 and 1-for-20, respectively. Investors generally loathe such a move, but for struggling stocks, they're a better outcome than being delisted.

Investors should expect J.C. Penney to follow suit with its own reverse split as that is the most likely next step for the company. Be on the lookout for an announcement about a reverse split in the next couple of weeks.