J.C. Penney (NYSE:JCP) stock has been all over the map over the past year, ranging from a low of $4.90 to a high of $11.30. The stock is down 18% in 2014 as of this writing. The upcoming holiday season could be the true "do or die" time for the struggling retailer attempting to make a lasting turnaround. Let's take look at what J.C. Penney has been doing to try to execute a successful turnaround and use it to figure out where J.C. Penney is going.

File
Source:  Amin Eshaiker in Wikimedia Commons.

Digging its way out
After some signs of life last holiday season with a small uptick of 2% in same-store sales growth for the quarter and 3.3% during the nine-week holiday period, J.C. Penney announced it was closing 33 underperforming store, which it expects will save $65 million annually. The first step in any turnaround situation is to close or exit those areas where a company is losing money. J.C. Penney is doing that and will continue to do so.    

J.C. Penney also noted it had solidified key relationships with suppliers, discontinued certain brands, rebuilt merchandise and marketing strategies, and restored its footing financially. The company ended the holiday quarter with $2 billion in liquidity and profit margin jumped to 28.4% from 23.8% in the year-ago period. 

Then-CEO Myron Ullman declared "the most challenging and expensive parts of the turnaround are behind us" and guided for same-store sales growth of between 3% and 5% for the first quarter and mid-single-digit percentage growth for the full fiscal year 2014, along with "significant" improvement in profit margin.

Growing the bank
On May 15, J.C. Penney announced same-store sales for the fiscal first quarter rose 6.2%, well above the 3% to 5% guidance given for the quarter in February. Not only did the overall quarter show promise, but each month within the three-month period saw same-store sales improve sequentially. Gross profit margin improved to 33.1%, which was much better than the holiday quarter figure of 28.4%.

The company worked to improve merchandising that engages the customer better especially with its private brand labels. Marketing centered around the right fit for the right value. It seems to have worked. The go-forward plan is to make this message louder.

 A little over a month after the Q1 earnings report J.C. Penney announced a new $2.35 billion credit facility on improved terms from the previous $1.85 billion. 

The Q2 report came in August and reported same-store sales for the quarter soared 6%, profit margin jumped to 36%, and the company experienced positive free cash flow. J.C. Penney guided for more of the same for the fiscal third quarter, and Ullman declared the turnaround was approaching completion as the right mix of merchandise and the right message in marketing seemed to be resonating well. The stock soared to new 52-week highs as high as $11.30 on Sept. 12.

Then the collapse
On Oct. 8, the company lowered its fiscal third quarter guidance for same-store sales growth to reach only the low single-digits instead of the middle single-digit range where it had previously been. The company said it hit a soft patch in September "due to lower levels of clearance compared to last year and the continued difficult retail environment."

Despite the soft patch, J.C. Penney kept the full-year profit margin and same-store sales guidance outlook. September is one of the seasonally weakest months of the year for department stores as back-to-school shopping is over and Halloween and holiday shopping hasn't yet begun. Investors may have reacted too negatively to this single data point, helping bring J.C. Penney stock down for the year.

It's difficult to value J.C. Penney for the long term, but if you like what management has been doing so far this year and think there is viable hope for the chain, now would probably be a great consideration point on the steep sell-off that seems to be a near-term emotional overreaction. J.C. Penney is finally growing again in terms of both sales and free cash flow with a hopeful plan in place to keep going. This holiday period may be the decider on the ultimate direction.

Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.