Myron "Mike" Ullman's return to the helm at J.C. Penney Co Inc unnerved investors, who said his experience was welcome but was not a cure-all for the retailer's sliding sales and dwindling cash.

Shares fell 12.2 percent, on the highest volume in the stock's history, and nearly reached their lowest levels since 2001. The cost of insuring Penney's bonds against default rose 3.5 percent, according to data tracked by Markit.

Ullman was CEO from 2004 to 2011, before being replaced by Johnson, whose decision to remove coupons and discounts in favor of "everyday low pricing" last year was blamed for a 25 percent drop in sales in 2012.

But Penney also lagged rivals Macy's Inc and Kohl's Corp in terms of sales growth coming out of the 2007-2009 recession. On Ullman's watch, the 111-year-old retailer got rid of its catalog, decimating a once-robust e-commerce business, while home goods sales shriveled.

In a May 2012 presentation, investor William Ackman, who hired Johnson, called Penney "chronically mismanaged" during Ullman's tenure.

"Ullman inherits a customer base that, in our view, feels it has been betrayed, and he will be virtually powerless to prevent JCP from burning a substantial amount of cash in 2013," PiperJaffray analyst Alex Fuhrman said. He expects Penney to use up to $1 billion in cash this year.

While Ullman could not be reached on Tuesday, he told Reuters on Monday that while at the helm, Penney's market value, sales and profits had reached all time highs. "At the end of the day, the results speak for themselves," Ullman said.

NO PANACEA, BUT A STEADY HAND

As much as Wall Street clamored for Johnson's ouster, analysts warned Ullman's return was not a long-term solution as he tries to win back shoppers and mollify worried vendors.

Dow Jones reported that Penney's same-store sales were down more than 10 percent in the fiscal first quarter, citing sources, underlining the depth of the problem Ullman faces. Wall Street analysts on average expect same-store sales to fall 12.7 percent in the quarter, according to Thomson Reuters data.

"Ullman makes sense in the interim, given the urgent cash situation. Ullman is also a known partner to the vendors," UBS analyst Michael Binetti wrote in a note on Tuesday.

In addition to the pricing strategy, Johnson's plan to remake Penney included the roll-out of branded boutiques within stores - an expensive proposition that many observers expect Ullman to scale back to conserve cash since store remodeling eats up cash.

Under Johnson, Penney opened shops for fashion brand Joe Fresh and last week opened the first two shops in its revamped home section, long Penney's weakest business.

But Binetti and others questioned their popularity. Barclays Capital credit analyst Hale Holden said after a visit to a New York City store last weekend that the more traditional offerings were attracting the bulk of the traffic.

Ullman's first task will be to win back shoppers alienated by Penney's removal of coupons and the move to trendier items. Analysts warned that Penney would have to spend heavily on advertising and couponing to win back shoppers.

While Ullman is well regarded in the industry, his biggest contribution, analysts said, will be his longstanding relationships with vendors. That will potentially win Penney more time while it rights itself.

"Our best guess is given JCP's scale and relative importance combined with Mr. Ullman's historical relationship with the company's vendors probably creates a pause," Barclays' Holden said in a note.

For all the criticism heaped on Johnson, many analysts say there are changes he brought in his 17 month-term that Ullman would do well to keep in place, starting with the neater look of the stores, long faulted for looking like bazaars.

"The stores look cleaner. The stores look more exciting today than they have ever looked," said retail consultant Walter Loeb, a frequent critic of Johnson.

(Reporting by Phil Wahba in New York; Editing by Jeffrey Benkoe, Ben Berkowitz and Leslie Gevirtz)