The third JC Penney makeover: Ousting CEO Ron Johnson

Scott Wapner , CNBC ? ? ? 1 hr.

JC Penney CEO Ron Johnson, who twice tried to revamp the retailer, is out after sales dove 25 percent last year, a source familiar with the situation said. Former CEO Mike Ullman will rejoin the company.

Johnson, a former Apple executive, had come under fire for his plans to revitalize the 110-year-old retailer by instituting a no-sale strategy and bringing in more fashionable clothing from edgier designers such as Betsy Johnson. That strategy hasn't yielded better results.

Ullman was CEO at the Plano, Texas-based retailer from Dec. 1, 2004 to Oct. 31, 2011 when Johnson replaced him.

Following the news of Johnson's ouster on Monday, shares spiked nearly 10 percent. JC Penney stock is trading 1.5 percent higher.

(What's the stock doing now? Click here for the latest after-hours quote.)

That alone is a turnaround: Since Johnson took over in 2011, JC Penney shares went down 51 percent, and the company's market cap has fallen to $3.49 billion from $6.84 billion.

Johnson's ouster appeared to have been foreshadowed Friday, when hedge fund manager William Ackman said at an investment conference that Johnson -- who he handpicked to turn around the struggling retailer -- had made "big mistakes" and that the impact had been "very close to a disaster."

"One of the big mistakes was perhaps too much change too quickly without adequate testing on what the impact would be," Ackman said at the conference sponsored by Thomson Reuters. Ackman, who had once been a booster for Johnson, heads the $12 billion Pershing Square Capital Management, which is JC Penney's biggest shareholder.

(Read More:Ackman Turns Up Heat on JC Penney CEO)

Thomas Engibous, chairman of the company's board, praised Ullman in a statement Monday: "We are fortunate to have someone with Mike's proven experience and leadership abilities to take the reins at the company at this important time. He is well-positioned to quickly analyze the situation jcpenney faces and take steps to improve the company's performance."

Liz Dunn, an analyst at Macquarie Capital, said the announcement suggests that "things are very much in flux at JC Penney."

"I don't think they can simply return to the old strategy and all will be well," Dunn said. "They've got some big questions to answer and I think the release sort of hinted at that when Ullman said he's got some work to do to even figure out what's salvageable."

The Associated Press contributed reporting.

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