Discount chain

Kmart's

(KM)

turnaround hopes are fading, and investors are rightly shedding the stock.

Shares are off more than 55% from their 52-week high of $13.55 reached in early August, as investors have come to realize that any turnaround at this outfit will take longer than anticipated. This week the company reported earnings -- a loss, actually, in this case -- that beat Wall Street estimates, but don't be fooled: the company's 25 cents-a-share loss was less than the 27- cent consensus, but as recently as seven weeks ago analysts expected the company to lose only a dime a share, according to I/B/E/S.

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Here is the problem: to great fanfare, earlier this year the company revived its famous Bluelight specials, an in-store campaign that uses flashing blue lights to notify customers that an item is on sale. This was followed by its so-called "Bluelight Always" campaign, which permanently slashed prices on a variety of goods. The aim: to compete with discount giant

Wal-Mart

(WMT) - Get Report

.

But this effort failed -- a familiar retail mantra is that no one competes with Wal-Mart on price and wins -- and Kmart lost market share to its rival, according to most analysts. In the third quarter, for example, Kmart's key same-store sales number, which gauges activity in shops open at least a year, declined 1.5%, while Wal-Mart posted a healthy 6.7% gain.

The company's effort to overhaul its supply chain and cut the cost of procuring goods is moving along -- it took a $94 million charge in the third quarter for this purpose -- but as of yet has not resulted in significantly improved margins.

And the holiday shopping season, which many say will benefit discounters as cash-conscious consumers seek out bargains, appears to be passing Kmart by. Its same-store sales in November are behind plan, the company said this week, which executives blame on a too-drastic cut in advertising.

Some Wall Streeters expect the company's turnaround efforts to finally pay off next year, but investors would be wise to wait for firm signals that a rebound is in effect.