For J.C. Penney  (JCP - Get Report) , there is still little room for error despite recent quarters of improved comparable-sales growth.

Granted, the department store retailer is doing better relative to its performance over the previous couple of years, damage that was largely inflicted on the watch of former CEO Ron Johnson.

In J.C. Penney's quarter ended Aug. 1, for example, the retailer said comparable-store sales increased 4.1%, while both revenue and adjusted EBITDA increased to nearly $2.9 billion and more than $130 million, respectively.

The Plano, Texas-based chain reports its latest quarter on Friday. But regardless of the better performance or what the company may end up reporting, the leverage J.C. Penney had to take on in order to bail itself out puts it in a precarious position.

For example, J.C. Penney hired Goldman, Sachs & Co. in 2013 to arrange some $2.25 billion in loans, backed by the retailer's most valuable asset, its real estate.

When the department store operator needed even more cash that year, it had to go to the public markets in the form of an unexpected secondary share offering.

According to an Aug. 14 report issued by Rapid Ratings International, a provider of quantitative analytics related to companies' financial health, J.C. Penney is at high default risk with poor core health. Rapid Ratings said that weakness in its earnings and leverage position put the retailer in danger, despite adequate liquidity.

As of Aug. 1, the retailer had nearly $5.3 billion in debt and almost $1 billion in cash. Subtracting the cash would equate to $4.3 billion in debt, which is a multiple of about 6.7 times projected EBITDA of around $640 million for the fiscal year ending Jan. 31, 2016, according to data provided by Bloomberg.

That level of debt is still well above what is considered investment grade.

The Rapid Ratings report pointed out that if current trends persist at J.C. Penney, it expects a high risk of default in the coming year. As a result, J.C. Penney would have to return to the markets to access more cash.

So far the public markets have had confidence in the turnaround because of the improvement in comparable sales results. But how long it can retain that confidence remains to be seen.

While allowing that the retailer may show its second decent quarter in a row, James Gellert, chairman and CEO of Rapid Ratings, said on Friday, "To keep its momentum, JCP's going to need to show a great holiday season. This market is finicky and JCP's recent stronger stock performance can turn on a dime if they don't show promising holiday sales."

In fact, a strong holiday season would help J.C. Penney go into 2016 with reasonable stock market base, which would help if it needed more capital, Gellert added.

Bottom line: Until J.C. Penney can significantly reduce its debt load, it is basically one bad recession away from no longer being a viable business.