J C Penney Company Inc (NYSE:JCP) continues to stand out as the ugly duckling in what may be one of America’s most unsightly beauty pageants. Department store stocks are getting killed across the board — we all know that — but JCP stock has been particularly ugly recently.

JCPenney stock is down about 25% since cutting its earnings outlook last week, a move expected by many considering the headwinds in mall retail.

But the severity of the cut was quite shocking.

The company is having to clear slow-moving inventory, particularly in the women’s apparel category. Consequently, JCPenney is running high promotions and that is eating into margins. Management said that its adjusted third-quarter net loss would be about double what the Street was looking for. For the full-year, management said adjusted net income would be just 5-cents-per-share, while the Street was sitting at 43-cents-per-share.

That is a hefty cut.

It means that although JCP stock price is $2.70, the stock still trades at a rather absurd 54-times this year’s earnings. Plus, there is a whole bunch of debt on the balance sheet (about $4 billion), but the company is struggling to produce much free cash flow ($250 million this year).

Overall, the writing is on the wall for JCP stock. There likely won’t be any rebound here. Instead, this stock will simply grind lower.

JCP Stock Will Get Squeezed Out

The broad, long-term outlook for JC Penney is unfavorable.

Malls aren’t dead. They are just shrinking as a sizable chunk of sales move online. This shrinking will be quite large. The U.S. has about 23.6 retail square footage per capita. That is 40% more than Canada, 5-times as much as the United Kingdom, 6-times as much as Japan and 10-times as much as Germany.

And that doesn’t include digital commerce.

Clearly, the United States is over-retailed. Consequently, the adjustment to an omni-channel retail environment will include a sizable reduction in America’s brick-and-mortar retail footprint.

When you have something that big shrinking by that much, certain players are doomed to get squeezed out of the mix. The biggest occupants in those malls are department stores like Nordstrom, Inc. (NYSE:JWN), Macy’s Inc (NYSE:M), and JCPenney.

Thus, as this shrinking happens, the most likely players to get cut are department stores. And the most likely department store to get cut is JCP.

The updated guidance proves one major thing about JCP stock: the retail giant can’t drive traffic unless it runs heavy promotions. The current retail backdrop won’t change anytime soon. In fact, it might just get more promotional as more sales go online and free shipping plus quick delivery becomes a standard. Because of this, it looks like the only way JCP will drive traffic in the foreseeable future is through heavy promotions.

That is a tough place to be because earnings are already sitting at a narrowly positive 5-cents-per-share. Any more promotions and you risk turning that narrow profit into a loss. A company that loses money with a ton of debt is a recipe for a disaster.

Bottom Line on JCPenney Stock

It might look like a bargain at $2.70 considering it was an $80 stock a decade ago, but JCPenney Stock is far from good value here. Its trading at more than 50-times this year’s earnings. There is no guarantee those earnings will go up next year and the massive debt load isn’t going anywhere. Nor is major competitor, Amazon.com, Inc. (NASDAQ:AMZN).

All in all, things will only get worse for the struggling department store as it finds itself getting squeezed out of the retail scene. That means JCP stock will simply grind lower over time.

As of this writing, Luke Lango was long AMZN.