NEW YORK (CNN/Money) - Retailer J.C. Penney's troubled Eckerd drugstore chain is a thorny problem that just won't go away.

Penney, the nation's No. 5 general merchandise retailer, warned this week in an SEC filing that it expects "a difficult second half" for the ailing drugstore unit and expects a 30 percent drop in Eckerd's third-quarter operating profit and a flat fourth quarter.

"The big problem for drugstores is that mass merchandisers like Wal-Mart (WMT: Research, Estimates) and Target (TGT: Research, Estimates) are stealing customers by offering lower prices for over-the-counter drugs, cosmetics, food and other personal-care products," said Howard Davidowitz, an independent retail consultant.

"Eckerd is weak" in these more profitable products, he said, adding: "This is endangering Eckerd's turnaround."

A long turnaround effort is finally paying off for Plano, Texas-based Penney, which has improved both merchandise and sales at its namesake department store and catalog businesses, and seen its stock jump the last two months.

But weak sales at Eckerd, which account for nearly half of Penney's total sales, are weighing down Penney's results. And if things don't improve, Penney may move to rid itself of Eckerd or push out the chain's CEO, Wayne Harris, industry watchers said.

In addition, Walgreen (WAG: Research, Estimates), the No. 1 drugstore chain, is expanding rapidly into Eckerd's key markets of Florida and Texas. Eckerd ranks No. 4 measured by sales, behind Walgreen, CVS (CVS: Research, Estimates) and Rite Aid.

Last month Penney reported a narrower-than-expected loss for its second quarter, citing a "rebound" in its department store, Internet and catalog sales. Sales at department stores open at least a year -- a key measure known as same-store sales -- rose 2.1 percent in the period versus a 2.4 percent decline a year earlier.

The big blow came from Eckerd, where same-store sales slumped 0.8 percent, compared with a 6.1 percent gain the year before.

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"Eckerd's sales and operating profits were clearly disappointing," J.C. Penney Chairman and CEO Allen Questrom said in a statement.

Wall Street analysts apparently agreed. Morgan Stanley analyst Bruce Missett downgraded the stock recently to "underweight" from "equal-weight," saying in a research note that despite improved merchandising in its retail business, Penney's earnings potential is being hurt by the outlook at Eckerd.

Jeffrey Klinefelter, analyst with US Bancorp Piper Jaffray, said he believes Eckerd will continue to hurt Penney's sales. He has an $18 price target -- below its current level -- and a "market perform" rating on Penney.

Penney shares have rallied recently -- up 20 percent since July. With a price-to-earnings ratio of 16 times this year's estimates, the stock is still trading at a discount to its sector P/E of 23.9. Revenue last year was mostly unchanged at $32.3 billion from the year before.

Department stores contributed 47 percent, and Eckerd made up 45 percent of Penney's total sales, the rest coming from catalog and Internet sales.

Eckerd chief Harris joined the company in late October 2000 and initiated the turnaround effort for the unit. But his tenure thus far hasn't won many fans on Wall Street.

"J.C. Penney Stores CEO Vanessa Castagna has done a fine job with the department stores. She's brought great new trendy brands like Bisou-Bisou, giving Penney street credibility amongst its younger customers," said one industry analyst who did not want to be named. "Wayne Harris isn't looking so good. His ouster might be the catalyst to rein in the operation."

Klinefelter also said he had speculation about Harris but declined to comment.

"We've already said that we would evaluate Eckerd near the end of the year regarding any spinoff possibility," said Penney spokesman Quinton Crenshaw. "We have had plenty of bumps this year and we've acknowledged that. "

In response to a question about Harris, Crenshaw cited the company's policy of not responding to rumors.

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Bill Dreher, retail analyst with Deutsche Bank Securities, thinks Penney will be hard-pressed to find a buyer for Eckerd anytime soon.

"Spinoff talks have been on for years," said Dreher. "But there are a limited number of buyers. Walgreen, Rite Aid, CVS (CVS: Research, Estimates) are facing challenges of their own. Why would they rush in right now?"

According to industry publication Chain Store Age, even though drugstores posted sales growth of 8.1 percent in 2002, 60 percent of the sales came from the pharmacy business.

The problem here, say analysts, is that consumers want a one-stop shopping trip and are increasingly opting to buy their prescription drugs from pharmacies at discount chains instead of drugstores.

In fact, an industry consumer survey indicated that 54 percent of U.S. shoppers bought prescription medication at drugstores last year, down from 62 percent the year before.

"Is Eckerd saleable? Perhaps in late 2004 or 2005," said Bernard Sosnick, analyst with Fahnestock & Co. "J.C. Penney's board is expected to begin talks this year about what to do with the unit. They could decide to keep it because the problems at Eckerd are correctable. The frustration is that change there hasn't kept pace with what's happened with the rest of J.C. Penney."  

-- analysts interviewed do not personally own shares of J.C. Penney and their firms do not have an investment banking relationship with the company.