Special Features The Losers of 1999

By Paul Larson, Bill Mann (TMF Otter), Rick Munarriz (TMFBreakerRick), and Matt Richey (TMF Matt)

(Dec. 21, 1999) -- 1999 will be a year to forget for J.C. Penney (NYSE: JCP) shareholders. Or maybe this is the year to finally throw in the towel if you've been hanging onto shares of the dying midlevel department store chain. Struggling sales have caused the shares to steadily lose ground all year, but the final blow came on December 6 when the company slashed the dividend by 50% in order to have sufficient funds to keep the business afloat. In addition to the sagging department stores, the company also owns 2,900 Eckerd drug stores. All told, J.C. Penney has generated more than $32 billion in revenues over the past year, but the company's market value is less than $5 billion. Bottom-fishers should carefully consider whether J.C. Penney is worth the risk with its $9.6 billion debt load looming large. Down 59.4%

Network Associates (Nasdaq: NETA), maker of McAfee software, holds the number one position in the software security market. But that wasn't enough to prevent a cataclysmic earnings shortfall earlier this year. The company gave a litany of reasons for the shortfall, including a slower enterprise software business, the impacts of Y2K, an upgraded software suite, and a longer sales cycle. Since then, revenues have been stagnant and profits have turned to losses. Even so, the stock has moved off its lows due to the recent spin-off of 15% of McAfee.com (Nasdaq: MCAF), which had a successful initial public offering on December 2. After a year of losses, analysts expect earnings of $0.82 per share in the coming year. Down 63.7%

Iridium (OTC: IRIDQ) will likely go down as the 1990s version of the Edsel -- a big, brash idea that had backers galore and true believers around the world, and was the perfect picture of a horribly run business. Iridium is a project 10 years in the making that was born from Motorola (NYSE: MOT), which chose to spin it off. The engineering of Iridium is a true marvel -- it is a series of 66 low-earth orbit (LEO) satellites that allow anyone to call or be called anywhere on the planet, just so they were in line of sight from a satellite. But people balked at the $3000 price tag on phones from Motorola and Kyocera (NYSE: KYO), the $7-per-minute airtime rates, and the relative bulk of the phones. And the company made some miserable choices as a development stage company, including taking on nearly $5 billion in debt, not to mention a poorly designed marketing plan that raised expectations of potential clientele to unreasonable levels. "Anytime, Anywhere" just wasn't so, and in August 1999 Iridium was forced into Chapter 11 bankruptcy protection, with all that debt balanced against only 27,000 customers worldwide. The company's assets are likely to be purchased by another company, but for now, those amazing satellites float up there, mostly silent. Down 94.1%

Bill Foley has gone from sirloin to ground beef with burger happy CKE Restaurants (NYSE: CKR). After mending the Carl's Jr. fast food chain, Foley became a turnaround magnet. Struggling drive-thru value burgeries Rally's and Checkers came looking for salvation. Then Foley bought the sluggish Hardee's chain outright. Today, all but 1000 of CKE's 3800 restaurants are Hardee's locations. Indigestion, you think? Earnings have been cut in half this year as CKE copes with eroding margins. The company, once bent on acquisitive ways, is now looking to unload underperforming restaurants. Order this one as a 1999 loser -- to go. Down 80.3%

Is there any refurbishment for the trashed? Shares of Restoration Hardware (Nasdaq: RSTO) were hammered in 1999. The upscale home furnishings retailer has been struggling to turn a profit as it grows its 85-unit chain. Earlier in the year, the company found itself with excess inventory. The solution was a rare sale that took a nail gun to profits and margins. Unfortunately, the remodeling woes continue. Gross profit margins have gone from 30.4% to 27% this year. While sales at the store level are rising, up 5.5%, the markdowns have sanded down the bottom line. Down 73.0%

Pull over on a major Southern thoroughfare and you might find a Cracker Barrel Old Country Store. Mind the pothole. Shareholders hit it first. For fiscal 1999, which came to a close in late July, Cracker Barrel parent CBRL Group (Nasdaq: CBRL) reported lower guest traffic comps every single quarter. While the headcount finally improved for the most recent October quarter, the profit decimation continues like a diner on his third serving of chicken and dumplings. With 414 units in the flagship concept, CBRL was also dealt the resignation of its president last month. The company is in a jam, which unfortunately can't be spread over one of the eatery's signature biscuits. Down 57.6%

Pediatrix (NYSE: PDX) has seen its stock act acutely ill through 1999. After peaking above $60 per share this past January, Pediatrix has seen roughly 90% of its market value erased over the past 12 months. The shares were rocked earlier in the year after some accounting irregularities, class-action lawsuits, and regulatory investigations surrounded the neonatal and pediatric intensive care unit operator. It didn't help when the company announced a 2-for-1 split that was later rescinded. Reported earnings have actually held up through the year with the company reporting EPS of $1.27 for the first nine months of 1999 (versus $1.31 for the same period in 1998). However, Wall Street is clearly quite pessimistic about the company's future since Pediatrix now trades at a P/E ratio below 4. Down 88.3%

One of the larger (if not the largest) scandals of the year came from healthcare supply company McKesson HBOC (NYSE: MCK). Back in April the company announced that earnings from prior years were to be restated thanks to accounting irregularities, and over $190 million in previously reported profits were expunged from its books. Not surprisingly, McKesson was absolutely stoned on Wall Street, and many of the company's top brass were given the boot. After peaking just below $90 in January, the stock has now settled in the $20 range. With 281 million shares outstanding, that means that McKesson has lost almost $20 billion in market value since January -- easily making McKesson a member of the "loser" list for 1999. Down 74.0%

Waste Management (NYSE: WMI) got shelled twice this year, once in July due to a revenue shortfall warning of about $250 million, or 7% of the company's expected revenues. Waste Management blamed its North American solid waste operations for the reduction. The company then replaced its entire executive staff, and the new staff immediately came in and found an absolutely miserable operational control of receivables, billing, inventory, and cash. For the year, Waste Management shares have lost nearly 68% of their value. The Houston company's new management team stated in their findings from an internal audit that they intend to eliminate those elements, both operational and personnel-related, at the root of the problems. Whether this company can salvage itself from the refuse heap of fallen companies will be one of the stories to watch next year. Down 69.0%

Rite Aid (NYSE: RAD) may get the Foolish Flop Award for 1999. Where most companies guide analysts lower in earnings, Rite Aid's situation was so deplorable that the company had to retract earnings forecasts made by the CEO the prior month, telling investors "not to rely on forward-looking profitability and cash flow information" disseminated at an Oct. 11 analyst and investor meeting. The impact of this extraordinary admission of, er, questionable earnings projections was further exacerbated when the company's accountants, KPMG, resigned, and the board of directors fired the entire management team. The root of the company's problems stem from an aggressive acquisition plan over the past two years that has failed miserably, leaving Rite Aid mired in debt. The final straw came when the Securities and Exchange Commission announced that they were considering reviewing Rite Aid's restated earnings. Never a good sign. Hardy investors and arbitrageurs seem to have entered the stock toward the end of the year, betting that the new management team can do better than the 83% loss in value delivered by the previous management. In the past three weeks the stock has climbed from $7 to over $12. Down 73.6%

Sabratek (OTC: SBTK) is one stock that has some investors (and financial pundits) rubbernecking at its disastrous fate. Trading just shy of $30 this past June, the stock of the telemedicine company can, as of this writing, be bought for less than 20 cents. That's right, Sabratek has lost more than 99% of its value over the past seven months. Quick, call the doctor! Amazingly enough, it appears that most of the punishment the company has received, including being delisted from the Nasdaq, is entirely warranted. Beyond getting sued by several class action firms, Sabratek recently missed a payment on its convertible notes, which is normally an omen to bankruptcy. Then, Sabratek's auditors said that the company's financial statements for the past three years "could not be relied upon." Actually, forget calling the doctor -- the company is already dead. Now it's just a matter of when they will bury the corpse. Down 99.4%

While we're talking about death, one sector than has been absolutely killed on Wall Street is the deathcare industry. Funeral home and cemetery operator Service Corp. (NYSE: SRV) is a perfect example of what has happened in the industry this past year, starting 1999 above $35 and going out in the mid-single digits. Among the things blamed for the industry's ailing health include a falling death rate and, more importantly, a cultural trend toward lower-cost cremation services instead of full-blown burials. Getting drunk with debt while loading up on questionable acquisitions hasn't helped the sector, either. Bring out yer dead! Down 81.1%

Returns are through December 20, 1999

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