A dispute between Martha Stewart Living Omnimedia Inc. (NYSE: MSO) and Macy’s Inc. (NYSE: M) over a licensing deal between Stewart and J.C. Penney Co. Inc. (NYSE: JCP) is set to go to court next month. In the meantime, J.C. Penney’s rollout of its Martha Stewart-branded goods will be crippled by the store’s decision to leave her name off a wide variety of products in its home decor and housewares lines.

According to an exclusive report in the New York Post, sources say that items such as bedding, linens, and kitchenware will be “largely free of the Martha Stewart label.” The dispute with Macy’s severely crimps CEO Ron Johnson’s original plan to boost J.C. Penney’s home retail business.

Instead, J.C. Penney is reverting to its long-established practice of offering goods at sale prices. Johnson had hoped to move the company away from promotional sales, but the store’s customers did not run toward the idea. J.C. Penney shares have lost more than 50% of their value since the store gave up on the promotional pricing.

The combined loss of the Martha Stewart branding, for which J.C. Penney paid $200 million in a 10-year deal, and the return to promotional pricing do not augur well for a turnaround in sales or profits.

Shares of Penney’s stock are up 0.2% in premarket trading this morning at $19.26 in a 52-week range of $15.69 to $43.18.

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