3 Stocks That Missed the Mark

It happens to every company sooner or later: Wall Street sets a mark for quarterly earnings, and the company misses that goal. Sometimes an earnings stumble is a signal to sell, but digging in the dirt is also a good way to find turnaround candidates while they're getting beaten down. Today, we'll see a pier with no docks, a doughnut that's all holes, and some exciting growth in a dying industry. It's game time.

Our first yellow card this week is home decorator and furniture seller Pier 1 (NYSE: PIR  ) . In spite of BerkshireHathaway (NYSE: BRK-A  ) investment guru Warren Buffett's vote of confidence in the company, the financial performance never seems to materialize. The analyst community expected a hefty $0.25 per-share loss this time, but the actual result was just a tad worse, at a loss of $0.26.

Compared to last year's $0.14 per-share loss, the downhill slide looks rather steep. Total revenue was also down over last year's comparable quarter, as were same-store sales and pretty much any margin you'd care to name. Earlier plans to open more stores than the company is closing have been revised to a net reduction of 10 to 15 stores this year. And Pier 1's CEO sounded less than enthusiastic when he outlined the company's new product line and brand repositioning, and in the next breath explained that customer traffic "remained weak." Whoop de doo.

I don't know what it will take to stem the tide of Pier 1 customers migrating to Target (NYSE: TGT  ) or Wal-Mart (NYSE: WMT  ) , and perhaps it's already too late. Maybe it's time to pick up the phone -- Mr. Buffett might have some advice for the floundering retailer.

Next up is doughnut maker Krispy Kreme (NYSE: KKD  ) , and this one is way off sides. The company doesn't technically belong on this list since it didn't actually report last quarter's earnings; it's in here more on general principle. The most recent financial update was filed on April 28, and it was a proper 10-K annual report -- for the fiscal year ended on Jan. 31, 2005. In lieu of actual data, Krispy Kreme issued a press release last week, saying that management is really sorry for the inconvenience of not having solid numbers available, but they think that they sold $116 million worth of deep-fried dough last quarter, down from approximately $153 million in the year-ago quarter. End of message.

If I sound bitter, it's because I was bitten by the Krispy Kreme bug back when it looked like a bona fide turnaround story. Sure, there were some financial statements to rearrange, and the low-carb craze was all over the place, but low-carb had to be a fad and interim CEO Stephen Cooper was a certified turnaround expert. He did manage to fix up Boston Market enough that McDonald's (NYSE: MCD  ) wanted to take it off his hands.

Yet here we are, more than a year later, and this financial house was apparently much more of a fixer-upper than anyone thought. Cooper has stepped down to the post of Chief Restructuring Officer, and a high-ranking snack food expert from Kraft (NYSE: KFT  ) has stepped in. But the future doesn't look all that brighter. Actually, financials seem to be on the way down, down, down, and stores are closing all over the place. I find myself wondering why the stock hasn't been kicked down to the Pink Sheets yet, considering the flagrant lack of timely financial reports, and I can't imagine owning this stock again. Godspeed, Krispy Kreme.

Let's end this list on a happier note, if only slightly so. Meet digital cinema specialist AccessIT (Nasdaq: AIXD  ) , which sells and installs digital projectors, sound systems, and the software to manage an entire movie theater, alongside some data center operations where small businesses can colocate their IT equipment and have AccessIT manage their machinery and networks for them. This small cap reported quarterly revenues of $4.5 million, up 28% over the comparable period last year, and a $3 million net loss. That's a loss of $0.17 per share, and a bit worse than the $0.11 loss the four analysts covering this company expected on average.

Despite the disappointing bottom line this quarter, the top line is growing quickly and is set to continue doing so for the next year or two. Between March and May, the total number of installed projection systems more than doubled, from 210 to 426, and there are agreements in place for 4,000 installations by November 2007. These are state-of-the-art digital cinema systems based on Texas Instruments' (NYSE: TXN  ) Digital Light Processor technology, promising to bring crisper pictures and more efficient content delivery to lots and lots of movie theaters.

And therein lies the rub. The way I see it, AccessIT is rolling out an exciting new service to a large market -- in a doomed industry. The way the entertainment industry is going, the multiplex is growing more irrelevant day by day as consumers move their movie experience into their own living rooms and even onto portable devices. Movies on demand, DVDs by mail, and streaming videos on your cell phone are crowding out the mall-attached theaters, and though there will always be a place for dates and popcorn, the niche is narrowing as we speak.

So once the build-out of the digital projection and management services is complete, it's nice to have the data center side business to fall back on. What looks like blue skies ahead now may just be the ride up the roller coaster, to be followed by a screaming, white-knuckle drop in a couple of years. You heard it here first.

Some of these underperformers are victims of larger circumstances, while others might have only themselves to blame. It's up to you to decide which down-on-their-luck companies should be able to pull themselves up by the bootstraps and which really are stuck in the mud. Come back next Monday, and we'll take a look at another batch of mishaps and disappointments.

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Wal-Mart is an Inside Value selection, and Kraft Foods is a pick for the Income Investor in you.

Fool contributor Anders Bylund no longer owns any stock in the companies discussed this week. These businesses may have let us down, but Foolish disclosure never disappoints.


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