Let me make sure I have this right.

JCPenney’s (NYSE:JCP) fourth-quarter revenue slumped 28% year-over-year, the per-share operating loss of $1.95 for the quarter was stunningly worse than the expected loss of 17 cents, and on a full-year basis, JCPenney’s top line of $13 billion was the weakest revenue the company has posted since 1987 … and the CEO still thinks his changes are good for the company?

Yeah. Sounds about right.

It’s a story that’s been told too many times already (including by me), so I’m not going to tell it again other than by saying CEO Ron Johnson took the helm of JCPenney in October 2011, and immediately began treating the company as if it and its customer base were Apple (NASDAQ:AAPL) — Johnson’s former employer — and Apple’s customer base. It didn’t fit, and the numbers prove it.

The question now is, how much longer is Bill Ackman going to let the ship sink before trying something else to plug the hole?

And that’s where I suspect things get really scary for faithful JCP shareholders.

Delusions

Since late last year, Johnson has frequently touted his in-store “shop” concept is working, on an absolute as well as on a sales-per-square-foot basis. Johnson might want to take a step back and look at the bigger picture, however.

Total sales fell from $17.2 billion in 2011 to about $13 billion in 2013. That’s a 24% plunge in the top line. Those shops might be working, but they’re also cannibalizing sales (and then some) from other parts of the store.

Johnson hasn’t exactly been the most humble guy on the job, either. When he decided to revamp the stores’ pricing structure to the “everyday value” pricing plan last year, a member of his management team politely recommended testing the approach in just a few stores first to gauge customer response. Johnson politely declined, ultimately thinking the company didn’t have time to do such studies.

Now, the company has been forced into taking the time to get it right. The quick decision only cost JCPenney about $4 billion in sales last year.

To give (some) credit where it’s due, Johnson finally has come around to the idea of undoing some of his changes; customers can look forward to more sales. Yet, even then, one gets the feeling Johnson remains relatively out of touch with the customer.

One of the reworks to merchandise pricing is using a tag with two numbers on it — the suggested retail value of the item, then the lower price JCPenney customers will actually have to pay. Johnson believes this tweak will better explain the value proposition that customers just didn’t understand before. It underestimates customers’ savvy, though.

The challenge for the retailer last year was never that customers didn’t understand everyday value pricing and the accompanying signage. Customers just didn’t care for the price, didn’t care about the merchandise, and didn’t care to step foot in the store until they got the mailer at home.

The “their price/our price” price-tag gimmick isn’t anything shoppers haven’t seen before, either. The fact that Johnson sees it as a game-changer is troubling.

How Much Longer?

All that being said, although Johnson continues to flounder, the market has started to recognize that as long as hedge fund manager and JCPenney’s largest shareholder Bill Ackman wants Ron Johnson to be the CEO, Johnson is going to remain as CEO. Ergo, Ackman is the key here — how much longer is he willing to let things go from bad to worse?

My answer: four more quarters.

Simply put, Ackman picked Johnson, and has since drunk the company Kool-Aid. Bill Ackman is supportive of — even excited about — Johnson’s shops-in-a-shop concept and the fact the stores are looking much better. This Q&A from a recent investor conference underscores that enthusiasm from Ackman.

Point being, as long as Ackman’s on board, Ron Johnson will have a job.

Even then, Ackman isn’t oblivious. Stubborn, yes, but not oblivious. I suspect he’ll be willing to give Johnson at least through next Christmas to prove he can turn JCPenney around with measurable signs of growth.

Customers and other shareholders won’t be as patient, though. If Penney can’t get the pricing and promotional problems solved by the middle of this year — two quarters — consumers might mentally write the company off indefinitely. Investors will follow that lead in real-time.

And for the record, I don’t see the company solving any of those core problems with Johnson at the helm.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.