Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. As I do every week, let's take a look at five dumb financial events this week that may make your head spin.
1. Sheer squad
Poor lululemon athletica (LULU -1.26%) shoppers.
They paid a stiff ransom for a pair of black luon yoga pants, and now it turns out that the pants are practically see-through when they stretch.
Spoiler alert: People doing yoga stretch.
Even with Lululemon faulting a supplier as it recalls all of the affected pants that it sold this month, it's the high-end yoga retailer that looks bad here. Affluent shoppers with active lifestyles pay a premium to shop at Lululemon to avoid quality issues, but the Canadian chain has had way too many recalls lately.
The thing is that Lululemon can't afford to mess up. It carries a stiff valuation, and now with more than 200 stores, it's not as if it has limitless expansion. There are only so many markets that will put up with a place selling $100 yoga pants. The retailer is warning that comps will soften here as it waits to restock on black luon pants, but eventually the hard times may come simply because patrons have had enough.
2. Another Penney for your thoughts
J.C. Penney (JCPN.Q) keeps finding new ways to drag itself into this weekly column.
A Bloomberg report shed some unwelcome light on the fact that CEO Ron Johnson and nine executives are taxing shareholders through weekly commutes to the department store chain's headquarters in Texas.
Yes, retail executives travel extensively in their jobs. They're not always at the office. However, at a time when J.C. Penney's bottom line is obliterated by thinning stores, does J.C. Penney really want to be abusing its corporate jets this way?
3. Bitter Harvest
It's never a good sign when auditors bow out of a company, shaking their heads.
That's what the bean counters at Harvest Natural Resources (HNR) have done, leaving the oil and gas company to delay the filing of its 2012 annual report.
There's a "material weakness" in the company's accounting. Harvest Natural Resources is coming across enough errors that it expects to possibly revise the past three years of financial statements.
Trust is a major part of any investing relationship, and right now Harvest Natural Resources just doesn't have it.
4. EA: It's in the blame
Things aren't going well at Electronic Arts (EA -0.65%), and the CEO is taking the fall.
John Riccitiello will be moving on by the end of next week, resigning as CEO and stepping down from the boardroom.
"We have mutually agreed that this is the right time for a leadership transition," the press release offers, but everyone knows that these decisions are rarely mutually agreed upon. Someone's getting booted.
It's an odd move given that shares of EA hit a fresh 52-week high just last week.
EA's financial performance doesn't match that 52-week stock chart, but it's not just EA that's struggling to grow in this environment. The entire video game industry is struggling at a time when die-hard gamers are waiting for new consoles to raise the stakes and mainstream gamers have moved on to cheaper and easier social and casual games.
EA has actually done more than its peers to embrace the social and casual games that have exploded in popularity at the expense of the console industry, which has suffered three brutal years of sharply declining sales.
A new CEO won't change that.
5. Scholastic flunks out
Scholastic (SCHL -1.77%) shares fell 14% yesterday after a dreary quarterly report.
The publisher of children books and educational materials posted a much wider loss than Wall Street was expecting on a 19% plunge in revenue.
It really shouldn't come as a surprise that Scholastic's in trouble during the seasonally sleepy fiscal third quarter. Just as Scholastic felt the pinch after the Harry Potter book series came to a close, it was up against the prior year's success of the Hunger Games trilogy.
However, it's more than just that. As schools and kids turn to tablets and e-readers, the demand for Scholastic's page-turners is diminishing. Yes, Scholastic has digital initiatives on its own. It's not stupid. It's in the education business!
However, it will take a long time before digital revenue offsets the revenue generated from the business that it's disrupting. Wall Street should've known better in assessing Scholastic's actual state. It's not stupid. It's in the money-making business!
