Stupidity is contagious, and even respectable companies can catch it. As we do every week, let's take a look at five head-spinningly dumb financial events from the past seven days.
1. Starbucks ground up, burned
If you're looking for another reason to lose faith in Starbucks (Nasdaq: SBUX ) , I've got a twofer for you.
The first reason to be wary is that McDonald's (NYSE: MCD ) is quietly going with a Freebruary campaign, giving away coffee at select restaurants from 5 a.m. to 9 a.m. McDonald's has definitely improved its brews, and when decent coffee's being given away, it's hard for premium coffee to compete.
The second reason to hate on Starbucks is that CEO Howard Schultz is making more than a few enemies across the pond this week. Schultz said that England's economy is in a spiral with very poor consumer confidence, which prompted U.K. business secretary Peter Mandelson to launch into an expletive-laced tirade against Schultz at a cocktail party. Perhaps the Starbucks CEO shouldn't take shots at England while his company has bigger fish to fry (sans chips or vinegar) closer to home.
2. Paperboy runs a yield sign
New York Times (NYSE: NYT ) became the latest company to eliminate its dividend in a move to preserve cash. That alone is certainly not enough to win a spot in this week's list, since the struggling newspaper company is actually making a financially prudent move.
But New York Times officially enters "dumb" territory when you realize that this is the second such cut it's made in the past few months. The company was paying a hefty dividend of $0.23 a share last year. It slashed that payout down to just $0.06 a share in November, before last night's move to obliterate the quarterly distributions completely. Why not cut the whole dividend back then, rather than teasing investors with a brief taste of a tiny payout? The newspaper company wouldn't have retained the love of income investors anyway.
3. Diamonds in the rough
Online jeweler Blue Nile (Nasdaq: NILE ) faced another rough quarter, posting its fourth consecutive year-over-year decline in stateside sales. While plenty of luxury jewelers are struggling in this environment, Blue Nile has a funny way of skirting reality.
"Our competitive position is strong, and our value proposition is especially relevant to consumers in this climate," CEO Diane Irvin notes in the earnings press release. "We are focused on extending our leadership position and continuing to gain market share in this environment."
Really? The company suffered a 27% slide in net sales during the telltale holiday quarter, after adjusting for an extra week this time around. It also has a history of misplaced optimism. Blue Nile spent $66.5 million to repurchase 1.6 million shares in 2008, or an average of roughly $41 a share. The stock is trading at half that price today. Ouch.
4. Following the Hurd
CEO Mark Hurd has done an amazing job at Hewlett-Packard (NYSE: HPQ ) , having turned the company around by squeezing margins to boost profitability. But those measures can only take a company so far, and it seems that Hurd may finally be reaching that limit.
The company posted mixed results on Wednesday. Even though Hurd managed to exceed Wall Street's profit expectations -- as the company has done every quarter since his arrival -- some troubling signs of weakness emerged. HP's flagship imaging and printing business, which once covered for shortcomings in the Compaq division, saw a 19% drop in revenue. I guess folks just aren't in a rush to print anything other than resumes.
Hurd's new squeeze? Salaries. He will be taking a 20% cut in his base salary, slashing executive pay by 15% to 20%, and sticking with a more modest 5% cut for most of HP's workforce. It's always refreshing to see a CEO take the biggest hit, but HP makes this week's dumb list because the cuts apply only to base salary.
Like most tech CEOs, Hurd relies more on stock options and bonuses than his base actual wages. Who cares about a 20% chop off the $1.45 million base salary he collected last year, when Hurd's total compensation was a whopping $42.5 million?
5. Head-on collision
Was anyone surprised to see General Motors (NYSE: GM ) and Chrysler return to Congress with tin cups in hand? Probably not. The two troubled automakers are asking for a combined $21.6 billion, just two months after successfully haggling for $17.4 billion.
I hate seeing iconic brands die, but at this point, aren't we just throwing good money after bad? GM announced 47,000 more layoffs this week alone, so it's not as if the bailout is fueling a rebirth of hiring, innovation, and productivity. It's time to separate the sublime from the lemons. Props to Ford (NYSE: F ) for resisting the urge to tap its bailout proceeds. Perhaps we should start awarding bailout money to companies that may actually be worth investing in.
Let's beat the dumb drum:
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