JC Penney drops as Goldman Sachs cuts rating on concerns with its turnaround efforts

J.C. Penney's stock fell more than 5 percent in morning trading Wednesday as a Goldman Sachs analyst lowered his rating on the department store operator, citing concerns with its turnaround efforts.

Goldman's Stephen Grambling said that J.C. Penney Co. reported 3.4 percent growth in online sales in the third quarter, but that's down from a 16.7 percent rise in the second quarter and its peers are still posting double-digit increases.

And while core customers have returned to the retailer, Grambling said that spending in key categories is still lacking.

"While we were hopeful that J.C. Penney's return to its 'old' strategy would recover a sizeable portion of lost sales, recent results lead us to believe competitive changes in the industry from off-price and online will prevent management from achieving its multi-year outlook," the analyst wrote in a client note.

J.C. Penney is still trying to recover from a failed attempt to reinvent itself. Mike Ullman came out of retirement last year to take over the CEO post after Ron Johnson was ousted. Johnson had tried unsuccessfully to reinvent the chain by getting rid of most sales and some basic merchandise. That led to billions in losses and sales declines and it has been a tough recovery.

Ullman has been trying to win back shoppers by restoring discounts and basic merchandise. In October J.C. Penney announced that Marvin Ellison would be its next president and CEO. Ellison, a former Home Depot executive, will take over from Ullman in August.

Grambling also has his doubts that potential strategic options via store closings or monetizing non-core assets will unlock significant shareholder value.

The analyst lowered J.C. Penney's rating to "Sell" from "Neutral."

Shares of the Plano, Texas company fell 40 cents, or 5.4 percent, to $7 in morning trading.