J.C. Penney (NYSE: JCP) has made the headlines this year for its spirited push for a turnaround. The company is desperately trying to reverse its fortunes at a time when it has very little options to play.
Just as a recap, J.C. Penney’s downfall came when former CEO Ron Johnson, who was also formerly an executive of Apple’s retail section, introduced radical adjustments to the retailer’s structure. Not only did Johnson scrap off coupons in favor of everyday low prices, but he also remodeled J.C. Penney’s stores. Evidently, this did not pan out.

In a bid to make a comeback, J.C. Penney has gone back to its old way of doing business. It has restored coupons, as well as the old store layout. Back in October it unveiled a slew of promotions targeted at rising sales volumes. Among the promotions is the ‘Mystery Savings’ scheme, which bundles together a set of benefits. These benefits include but are not limited to extra discount on home appliances, apparel, shoes, and accessories, as well as double points for its card holders along with a $10 reward on one-off spends above $50. Another notable promotion is the issuance of coupons for $10, $15, and $20 off purchases over $50, $75, and $100 respectively.

J.C. Penney’s promotions are certainly a good way of gaining traction. However, its turnaround prospects remain shrouded in uncertainty.

Negative Investor Sentiment Not A Good Sign

In mid-October, short interest in J.C. Penney was just over 30 percent, indicating that investors were betting against the stock. Not to mention, the retailer is still treading in the red. As we reported, J.C. Penney’s second quarter loss came in at $586 million on sales of $2.66 billion, with the latter having declined from $3.02 billion in the year-ago quarter.

J.C. Penney’s poor fundamentals have added to the pressure of the looming bankruptcy rumors that emerged in October. Although J.C. Penney fiercely denied the allegations, investors should keep one eye open. Nobody wants to put their money into a black hole. Negative investor sentiment will prove to be a huge impediment.

Competitors Push Overdrive Button

According to Morgan Stanley, this year’s holiday sales are expected to be the worst since 2008. The report projects that retailers will see a mere 1.7 percent increase in sales during the period. The anticipated decline in holiday sales is partly because this holiday season, which is the period between Thanksgiving and Christmas, is expected to be six days shorter than the prior year’s.

In response to this dim outlook, retailers have pushed the overdrive button. Wal-Mart Stores, Inc. (NYSE: WMT) started offering holiday deals on November 1, about a month earlier than usual. It is offering discounts on electronics and toys which are typically reserved for Black Friday. Wal-Mart’s decision reflects a sector-wide trend.

J.C. Penney, which will open on Thanksgiving for the first time, will be compelled to present better budget propositions for its products this holiday season if it intends to topple the competition. The question that still remains is; can J.C. Penney afford to compress its margins further at a time when it desperately needs to poke its head above the break-even point? Admittedly, J.C. Penney’s turnaround prospects remain uncertain.

Disclosure: Author has no position in any stocks mentioned, nor does he plan to initiate one in the next 48 hours.