J.C. Penney (JCP) is not a specialty retailer in the classic definition of the term, but it's clearly become a very "special" situation.

Second-quarter results, released a week ago, show the retailer's continued struggles after CEO Ron Johnson instituted a series of new initiatives that alienated and confused its core consumer base. J.C. Penney posted a wider-than-expected loss of 37 cents per share as total sales fell nearly 23% and same-store sales were down 21.7%.

Despite the grim results, Liz Dunn, senior analyst at Macquarie, is bullish on J.C. Penney; she has an "outperform" rating on the stock and raised her price target to $37 from $35 after the earnings call.

Dunn gives J.C. Penney management credit for attempting a "dramatic transformation of the business," featuring new brands, new pricing strategy and major cost cutting.

Most dramatically of all, Penney is "kinda firing their customer base a little bit," Dunn says. "They're not saying they want to fire their customers, but I think there is a customer who isn't going to go back."

That's true, judging from the feedback we've gotten to prior stories about J.C. Penney and Ron Johnson. From the hiring of Ellen DeGeneres to getting rid of coupons and sales, and cutting back on employees on the floor, a number of initiatives have soured many former loyal customers. (See: J.C. Penney Is the New Sears: Ron Johnson Has Done "Incalculable Damage," Davidowitz Says)

It's clearly a high-risk strategy and it's unclear whether any retailer can successfully reinvent itself and change its customer base on the fly. But desperate times call for desperate measures and Dunn gives Johnson and his team credit for taking such bold steps.

"The moderate department store space was dying a slow death," she says. "You can sit there and bleed to death over the course of several years or do what Penney is doing," she explains.

While there was little sign of it in the second quarter, Dunn believes the strategy is starting to work and notes J.C. Penney has a strong cash position to survive the turn, with about $890 million on hand as of June 30 and an untapped $1.5 billion credit facility. (Editor's note: An earlier version incorrectly reported J.C. Penney had $890 billion of cash on hand as of June 30.)

"It sounds to me like the company has worked out some of the early kinks and the news flow going forward should be more positive," she says.

Whether or not it turns positive remains to be seen, but it is hard to imagine the "news flow" for Penney getting much worse than it's been the past six months.

Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo! Finance. You can follow him on Twitter at @aarontask or email him at [email protected]