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Why is J.C. Penney Sinking?

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Shareholders are gradually discarding J. C. Penney Company Inc. (JCP - Free Report) , as shares of this department-store operator have nosedived approximately 50% in a year’s span, reflecting sinking revenues and bigger losses.

The market is also rife with the news of one of the company’s largest stakeholders, Vornado Realty Trust (VNO - Free Report) , abandoning J. C. Penney as it has sold a block of 10 million shares of this beleaguered retailer.

So what happened to the company’s much touted turnaround plan? Till now, no turnaround has been witnessed as its restructuring initiatives are failing to deliver the desired results.

If we look at the earnings surprise history, J. C. Penney has missed the Zacks Consensus Estimate for 5 straight quarters with an average negative surprise of approximately 447.8%.

During the recently concluded quarter, the company posted adjusted quarterly loss of $1.95 per share compared with earnings of 21 cents in the year-ago quarter. The Zacks Consensus Estimate for the quarter was of a loss of 19 cents.

J. C. Penney, which is in a transitory phase, is scrambling to remould itself from the way it had operated before Ron Johnson took charge. The company announced an array of measures, which include new pricing strategy, fresh logo, strategic merchandise initiatives, cost reduction and enhancement of customers’ shopping experience, which in turn is expected to augment store sales productivity, thus inducing margin expansion and bottom-line growth.

However, the company is showing no signs of improvements and lagging its peers, Macy’s Inc. (M - Free Report) and Target Corporation (TGT - Free Report) in terms of performance.

We believe that rather than harping on its restructuring efforts, the company needs to be more vocal regarding its pricing mechanism and better align its marketing efforts to attract buyers.

Given the risks associated with J. C. Penney, we assign a Zacks Rank #5 (Strong Sell) to its shares.

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