Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. It's time for my weekly look at five dumb financial events that may make your head spin.
1. Throwing the book at a superstore
Shares of Barnes & Noble
Unfortunately, you can't have a seller without a buyer, and here's where Barnes & Noble will likely come up short. There aren't any apparent retailers looking to take on a media-flipping dinosaur and private equity firms are unlikely to get involved unless they think a chain will be more valuable -- and relevant -- in the future.
Does that sound like B&N to you?
Any chances of the superstore chain becoming a major player in e-books with its Nook reader are remote given the current price war. Anyone brave enough to step up with a bid is either stuck in the past or didn't read enough history books in B&N's stacks while there.
2. Instant confusion
Hitting an impressive milestone, Starbucks
This may sound like a wonderful freshman effort, but is it the "mega hit" that Starbucks claims it is?
Starbucks boasts that 40% of those surveyed said Via is "additive to beverages they are currently drinking, rather than a replacement to existing Starbucks coffee."
Flip that around and Starbucks is saying that 60% of its Via sippers aren't walking into one of its stores for a coffee fix. Even if it expands its audience, it is fidgeting with the company's killer brand.
Starbucks also claims that it now has 30% of the instant coffee market in terms of sales volume, but this doesn't mean that nearly a third of the instant java connoisseurs are warming up to Via, since Starbucks sells its packets at a huge premium to rival offerings. Even Green Mountain Coffee Roasters'
I'm still not convinced that Via isn't cannibalizing sales of Starbucks itself. If Via is such a market-widening move for Starbucks, why do analysts see revenue climbing less than 5% in its upcoming fiscal year?
3. Lighting a torch at both ends
Well, Research In Motion
Really? RIM's first smartphone to incorporate a touchscreen with a slide-out keyboard is going to be rolled out through the same beleaguered wireless carrier that has exclusive dibs on the iPhone?
This isn't a knock on RIM's fundamentals, since it's still moving millions of new smartphones every quarter. However, its decision to align itself with the carrier that consumers associate with the iPhone will not allow it to get a mainstream read on the Torch's true market potential.
4. Walking the plank, backward
Investor reactions sometimes get tapped as dumb moves.
Shares of Lumber Liquidators
Really? Gross margins may have dipped, and this may have been the chain's first time to miss quarterly estimates since going public three years ago -- but the beat-down was way overdone.
For starters, this is a scalable model. Lumber Liquidators can expand net margins even when gross margins contract. Net income soared 31%, outpacing the 18% uptick in net sales.
How about the bottom-line miss? Lumber Liquidators actually reiterated its guidance for revenue, earnings, and store growth for 2010. The only part of the home improvement retailer's outlook that changed is actually a slight upgrade -- going from targeting "low to mid-single digits" to "mid-single digits" growth in comps.
Lumber Liquidators did go on to make back most of its intraday losses, but investors need to read more carefully next time.
5. Keep on trucking
YRC Worldwide
Investors are nervous about the trucking company's inability to nail down a union pension agreement and the real possibility of a bankruptcy filing by the highly leveraged company.
YRC has also yet to decide on a reverse split. This seems like a no-brainer given the looming threat of exchange delisting and a share count that has ballooned past a billion.
If YRC really isn't set on filing for reorganization, it owes it to its shareholders to address its potholes.
Which of these five moves do you think is the dumbest? Share your thoughts in the comments box below.
