Shares of department store chain J.C. Penney Co Inc (JCP.N) fell as much as 22 percent on Thursday, after it reported its sharpest drop in quarterly sales since unveiling a transformation plan that has failed to impress customers.
Many long-time shoppers have deserted J.C. Penney in the 13 months since Chief Executive Ron Johnson announced his plan to replace popular sales events with "everyday low prices" and roll out dozens of branded boutiques for hip brands.
The 31.7 percent decline in comparable sales during the important winter holiday quarter, reported late Wednesday, prompted at least three brokerages to cut their price targets on the stock, which has halved in the past year.
The company's shares fell to $16.57 on Thursday, making it the top percentage loser on the New York Stock Exchange. The second-highest traded stock on the exchange was up at $17.88 in afternoon trading.
"After reporting another beyond-worst case scenario quarterly result, our concern that (J.C. Penney) will not be able to stabilize the business has increased yet again," Credit Suisse analyst Michael Exstein wrote in a note to clients.
"We think the point has officially been reached where positive EBIT (earnings before interest and taxes) is impossible for at least the next two years."
J.C. Penney expects to open another 20 boutiques in spring, including shops for home products brands like Michael Graves and Jonathan Adler, and clothing such as Canadian brand Joe Fresh.
Hedge fund manager William Ackman, whose Pershing Square Capital Management is the largest shareholder of J.C. Penney, said this month that the store overhaul would take the company to "a tipping-point level".
Citigroup analyst Deborah Weinswig said that these plans could be the catalyst for a return to growth. Weinswig, however, cut her price target on the stock to $22 from $25.
J.P. Morgan analysts also cut their price target on the stock, to $15 from $18.
"While CEO Johnson stated he is committed to returning to growth longer term ... he would not confirm a specific timeline, citing greater visibility post the Joe Fresh and home transformation in May," the J.P. Morgan analysts wrote.
J.C. Penney's neighbor in many malls, Sears Holdings Corp (SHLD.O), has benefited as dissatisfied shoppers chose to shop at its Sears department stores.
Rival Kohl's Corp (KSS.N), however, did not gain from the weakness at J.C. Penney, and reported a lower fourth-quarter profit on Thursday, hurt by markdowns during the holiday season.
Kohl's forecast full-year earnings that were short of Wall Street expectations.
J.C. Penney did not provide any same-store sales or earnings forecasts on its conference call on Wednesday.
"(J.C. Penney) declined questions on February trends, leaving bulls with little hope that even the easy compares from eliminating coupons in the first quarter of 2012 are enough to drive positive same-store sales in the first quarter," UBS Investment Research analyst Michael Binetti wrote in a note.
Should the current trend continue, he said, Penney's first-quarter same-store sales were likely to fall as much as 19 percent compared with the 10 percent decline that he had earlier forecast. Binetti cut his price target on the stock to $10 from $13.
The short interest position in J.C. Penney has jumped to 27.2 percent of outstanding shares as of February 15, compared with 14.3 percent on December 31, 2011, the end of last full month before Johnson unveiled the plan, according to Thomson Reuters data.
Investors who sell securities "short" are betting that stocks will fall. Short interest in the stock market is often a gauge for the level of skepticism among investors.
(Editing by Don Sebastian and Robin Paxton)