S&P slashes credit rating on J.C. Penney

(CBS/AP) NEW YORK - Standard & Poor's Ratings Services is lowering its credit rating on J.C. Penney Co. further into junk status, saying the department store chain's performance remains weak.

The ratings agency said late Wednesday it lowered its corporate credit rating on the Plano, Texas, company to "B+" from "BB-." The junk rating is four notches below investment grade. The move marks the second downgrade from S&P since mid-May.

"The downgrade reflects recent performance that has been below our expectations and our view that it will remain weak over the next 12 months," said S&P's credit analyst David Kuntz in a statement.

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Kuntz noted that Penney is likely to "experience some further operational disruptions" over the next several quarters as it carries out its new pricing and merchandising strategy. That will likely result in loss of market share to other rivals like Macy's Inc., Kohl's Corp., Dillard's Inc. and other stores.

Concerns are growing about the company's ability to turn its business around.

Shoppers were turned off by a simplified pricing plan that eliminates hundreds of sales in favor of everyday prices. The plan was rolled out earlier this year by CEO Ron Johnson, a former Apple Inc. (AAPL) executive who joined J.C. Penney in November.

Penney posted a bigger-than-expected loss and a 20 percent drop in revenue in the first quarter as shoppers were turned off by the new pricing plan. The plan eliminates hundreds of sales in favor of everyday prices, but many shoppers, looking for big markdown signs and coupons, didn't show up.

Then the new president and former Target Corp. executive Mike Francis, who was in charge of marketing the pricing strategy, abruptly left last month. In an address to analysts last month, Johnson has continued to back his new pricing and said the problem has been that the chain failed to properly communicate the plan to its shoppers.

The company is now tweaking its ads to spell out the savings of the three-tier plan, which includes everyday prices that are 40 percent below last year's prices; deeper month-long discounts and clearance events.

The company has also been doing plenty of backpedaling, adding more clearance sales in addition to the first and third Fridays of the month. Credit Suisse retail analyst Michael Exstein wrote in a report this week that he believes that sales in the current quarter are worse than the 20 percent decline posted in the first quarter. He says that the company has slowed or canceled some orders.

Penney is scheduled to report its second-quarter results next month.

Penney's stock has lost half its value since February after initially climbing on optimism about the changes. The shares fell again Wednesday. They were down more than 2 percent, or 46 cents to close at $20.30.