Source: Wikimedia Commons

Feb. 26 will likely be the day that shareholders know whether J.C. Penney (OTC:JCPN.Q) is likely to put together a turnaround or destined to go down in the annals of finance as a massive failure. After the market closes, the business is due to report earnings for the fourth quarter of its 2013 fiscal year.

Given the pressure that management is faced with and all the troubles the company has experienced throughout the past two years, fourth-quarter results will grant Mr. Market some much-needed insight. Heading into the retailer's release, should the Foolish investor jump into the fray, or is the situation far too risky for sensible minds?

No matter what the picture, J.C. Penney will likely remain a mess
For the quarter, analysts expect J.C. Penney to report revenue of $3.86 billion. If their forecast for the retailer turns out to be accurate, it will represent a 0.5% drop in sales compared to the $3.88 billion that was reported in the year-ago quarter. Although this sounds like a negative outlook, it's far better than the 28% decline in revenue the company experienced between the fourth quarter of 2011 and the fourth quarter of 2012.

In terms of profitability, Mr. Market is a little more optimistic. If analysts are correct in their assumptions, J.C. Penney will report a loss per share of $0.82. This is far better than the -$2.51 that the company reported the same quarter a year earlier, but there is one caveat that investors should consider: increased share count.

Over the past year, the company has increased its share count by 39% from 219.3 million to 304.62 million. Assuming that management hasn't done anything to significantly change its share count from the end of its 2013 third quarter, the company's net loss is projected to be $250 million, roughly half the $552 million loss reported a year earlier. This suggests that, while the business' picture is expected to improve this quarter, part of it is attributable to a rise in shares outstanding that essentially serve to distribute losses across a larger pool of units.

Does any of this really matter?
In the event that J.C. Penney surprises Mr. Market and reports a blowout quarter, shares will likely soar and hopes that the company can recover will permeate the air. However, anything shy of a blowout quarter could point toward a downfall for the company. If this second scenario proves true, it will only serve to bolster the argument that companies like Macy's (NYSE:M) and Nordstrom (NYSE:JWN) are attractive prospects.

Source: MSN Money

Whereas J.C. Penney saw its revenue decline 25% from 2011 through 2012, Macy's has seen its sales jump nearly 5% from $26.4 billion to $27.7 billion. The primary driver behind the company's growth has been a 3.7% jump in comparable-store sales.

Nordstrom did even better. Over the same time frame, the retailer saw revenue skyrocket by 12% from $10.9 billion to $12.1 billion. In its annual report, the company stated that its rise in revenue was due to a 3.9% jump in comparable- store sales combined with a 7% increase in the number of locations in operation, from 225 stores to 240.

Looking at profitability, J.C. Penney continued to be a disaster. Between 2011 and 2012, the company saw its net loss widen from $152 million to $985 million. This was due, in part, to its fall in sales but was also attributable to an increase in costs in relation to sales.

In juxtaposition, both Macy's and Nordstrom posted strong gains for the year. From 2011 through 2012, Nordstrom saw its net income rise nearly 8% from $683 million to $735 million. Although the jump in revenue helped the company's bottom line, it came at the cost of higher expenses. For the year, Nordstrom saw its cost of goods sold rise from 60.6% of sales to 61.2%.

Although Macy's was unable to keep up when it came to revenue, the company's rise in profitability more than offset this. Compared to a year earlier, the company reported a 6% jump in net income from $1.26 billion to $1.34 billion. Unfortunately, this was lower than Nordstrom's rise in profits, but unlike Nordstrom its net income rose at a faster pace than its revenue. This was due, in part, to the company's jump in sales but was also due to its selling, general, and administrative expenses falling from 31.4% of sales to 30.6%.

Foolish takeaway
Right now, it's impossible to say what kind of earnings J.C. Penney will report on Wednesday. However, given the fact that the business has been performing poorly these past couple years, it's difficult to believe that it can turn things around. For this reason alone, only shareholders who believe in the company's long-term potential should consider jumping into the picture now.

Meanwhile, investors who are more cautious and don't want to take a chance on an unstable business should consider looking into Macy's or Nordstrom, as both have a recent history of strong growth and profitability; both things that J.C. Penney sorely lacks.

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.