Ron Johnson’s big plan for J.C. Penney Co. Inc. is a reinvention that could drag the chain’s sales down this year, according to Fitch Ratings.

The debt watchdog cut its issuer default rating on Penney’s to “BB-plus” from “BBB-minus” — moving the rating into speculative or “junk” territory.

The outlook on the rating is stable. Fitch also lowered its rating on the company’s $1.5 billion bank facility to “BBB-minus” from “BBB” and its grade on $3.1 billion in senior unsecured notes to “BB-plus” from “BBB-minus.”

Johnson, the former Apple retail chief who took over Penney’s as chief executive officer last year, is shaking up one of the industry’s largest players, moving to a simpler pricing strategy and replacing 400 brands with 100 brand-centric shop-in-shops.

“The ratings reflect significant execution risk for J.C. Penney over the next 12-18 months as the company rolls out its new pricing and promotional strategy and addresses fundamental areas such as merchandising, costs, and investments in its store base,” the rating agency said. “Fitch views many aspects of the new strategy as strategically sound and believes the company should be able to take costs out of the system to fund increased investments. However, the jury remains out on whether consumers will buy into the new pricing structure and whether or not the company can turn around faltering sales and sustainably improve the profitability of its business.”

Fitch estimated that Penney’s sales could contract by a percentage in the high-single digit range this year as it bucks the retailer’s prevailing high-low promotional strategy. The rating agency said sales could also be disrupted as the firm adjusts its inventory levels and starts rolling out shop-in-shops.

“Things are likely to get worse over the near term…with the first half of the year expected to be worse than the second half,” Fitch said.

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