Stupidity is contagious -- even respectable companies can catch it. As we do every week, let's look at five dumb financial events from this past week that may make your head spin.
1. We deserve better scapegoats
Many retailers blamed slow retail sales this past holiday season on the wintry snowstorms that froze shoppers through December and January. Then they blamed the Easter holiday's move from March to April as the cause of continuing weakness the following quarter. Well, the industry is fresh out of scapegoats, so now it's exonerating the scapegoats of yore.
"We thought our sluggish sales were all because of weather and calendar shifts that began last November and continued into the spring, but now we've come to realize it's more than weather and calendar," The Container Store (TCS 1.85%) CEO Kip Tindell on Tuesday. "Consistent with so many of our fellow retailers, we are experiencing a retail 'funk.'"
Tindell's realization was naturally accompanied by bad news. The Container Store's comparable-store sales declined 0.8% in its fiscal first quarter ending in May. He sees comps stabilizing in the next two quarters before bouncing back during the seasonally potent fourth quarter, but his refreshed guidance suggests that things still aren't humming along.
The Container Store is now expecting to earn $0.49 a share to $0.54 a share on $820 to $830 million in sales this fiscal year. Just three months ago the home storage and housewares retailer was targeting as much as $0.61 a share in profitability on $837 million in revenue.
2. This is just networking out
It wasn't just The Container Store hosing down its near-term prospects. Gigamon (GIMO) shares took a beating after revealing that revenue for the second quarter will clock in between $34.5 million and $35 million. Its previous guidance was calling for $38 million to $42 million on the top line.
There's no "retail funk" here, as Gigamon's trade is in providing networking hardware solutions for companies. It blames the shortfall on its failure to convert potential customers, who seem to be subjecting their IT decisions to longer review and approval cycles. That's bad news for Gigamon, but it could also be bad news for others in this space if it's true across the industry.
3. Something wicked this way comes
Comcast (NASDAQ: CMCSK) finally had the grand opening for its Diagon Alley expansion at Universal Orlando's Wizarding World of Harry Potter. It's amazing in many ways, starting with the rich details of the London and Diagon Alley recreations to the delightful high-capacity Hogwarts Express ride that connects Universal Orlando's two theme parks with some Potter-themed whimsy.
However, the opening makes the cut in this week's column because its signature ride -- Harry Potter and the Escape from Gringotts -- has been an operational nightmare. The 3-D indoor coaster has had prolonged outages throughout the week, leading to long lines, frustrated park guests, and even an evacuation or two along the way. The setbacks and low capacity have resulted in queues as long as 450 minutes. Where's some wizard magic when you need it?
4. Rent a wreck
If there is any truth to The Container Store's "retail funk" theory, it would follow that folks are saving money by renting instead. This would seem to benefit Rent-A-Center (RCII 0.55%), but it, too, is warning of a material softness in its current performance. It sees a profit of no more than $0.38 per share on revenue of $773 million for the quarter that just ended, well short of the $0.48 per share in earnings on $786 million in revenue that analysts were forecasting.
However, Rent-A-Center makes the cut this week because of its strategy to get back on track.
"We are not satisfied with our second quarter results and hold ourselves accountable for improving our performance," the rent-to-own chain's CEO said in an honest assessment before moving on to its new growth drive. "To that end, we are excited to announce a new product line in our domestic retail stores with our entrance into the burgeoning smartphone business."
Really? Rent-A-Center is going to offer its cash-strapped customers smartphones on a rent-to-own basis. It claims it's an industry first, but this seems like a recipe for disaster given the way phones are scratched and damaged along the way.
5. CYNK or swim
You don't often see a penny stock quietly balloon into a multibillion-dollar company without much of a business in a matter of days, but that's what has happened in recent weeks to CYNK Technology (NASDAQOTH: CYNK).
The stock was called out on Wednesday by Business Insider after soaring nearly 25,000% -- 24,417% to be exact -- since June 17 to command a market cap of $4.3 billion. CNBC's Herb Greenberg and others then piled on after realizing that the company is light on assets and revenue and reportedly doesn't have an active business or staff. Who has been buying in without performing due diligence? Investors should know what they're buying into, but that also applies to speculators.
