S&P's credit analyst David Kuntz said in a statement that although he believes Penney's outlook is stable because liquidity will remain "adequate," the company's performance may weaken further over the next 12 months.
"Credit metrics have deteriorated substantially and we believe that they could erode further over the next few quarters," Kuntz said.
Now analysts, many of who once used words like "revolutionary" to describe Johnson's plan, are having doubts. Citi Group's Deborah Weinswig, who at first lauded Penney's pricing plan, wrote in a report Monday that the early sales performance of Penney's shops-within-stores is "encouraging." Still, she slashed her fourth-quarter earnings estimate for the company to 30 cents from $1.30.
Michael Exstein, an analyst at Credit Suisse downgraded Penney's stock to "underperform" from "neutral" on Monday. Exstein cited a survey that Credit Suisse had done before that showed that out of 17 retailers that suffered a total sales decline of between 15 percent and 25 percent, only four were able to recover the lost revenue. The remaining 13 either were acquired by private equity firms, filed for bankruptcy or merged with other public firms.
Exstein wrote that Penney "must find a way to significantly slow the sales decline within the next six months."
Burt Flickinger III of the retail consultancy Strategic Resource Group agrees that Penney has to improve sales, especially during the holiday shopping season in November December, a critical time for many retailers when they can make up to 40 percent of their annual revenue. But after Penney announced its plans for the shopping period on Monday, Flickinger said he has doubts that the company can compete with its peers.
Penney said it will have its only sale of the year on the day after Thanksgiving Day known as Black Friday, which is traditionally the busiest shopping day of the year. But the company also said it will open at 6 a.m., much later than some of its rivals that are opening on Thanksgiving Day or at midnight on Black Friday.
And some industry watchers were disappointed that Penney is using a gimmick to lure customers in during the season. The company plans to give out more than 80 million buttons to customers from Black Friday to Christmas Eve. Each button will feature a unique code on the back, which can be entered on Penney's website for a chance to win a vacation or other prizes.
"The holiday season could be catastrophic for Penney unless it becomes more competitive more quickly," Flickinger said.
Indeed, some Penney shoppers may already be lost to its competitors. Jeannine Soster, 48, of Mentor, Ohio, used to shop at Penney four times a week for her four children, ages 14 to 20. But since Penney got rid of discounts and coupons earlier this year, she hasn't bought anything there. She now goes to Old Navy and Wal-Mart for her children's clothing
To make things worse, she had a failed attempt at giving Penney a second chance in September. That's when she stopped by her local Penney store hoping to get $6 T-shirts. Instead, all she found were $20 versions.
"I used to be able to get sales and coupons," said Soster, who works in real estate. "I have no desire to go back to J.C. Penney unless they switch back."