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, a return customer pays a visit, followed by an anonymous guest, and then one whose work you've probably seen but never identified.

Peering at the pier
I'm really not out looking for repeat offenders here, but sometimes habitual underperformers need to be highlighted. This week, I'm talking about home-furnishings retailer Pier 1 Imports (NYSE:PIR), a regular customer here at Chez Ennui. Sales came in at $370.7 million, a whopping 12% below last year's revenue for the same quarter and $16 million below expectations. The weak revenue resulted in miserable earnings as well -- a pro forma net loss of $0.34 per share, where Wall Street had hoped to see a smaller $0.28-per-share loss. Add back stock-based compensation, litigation settlements, and writedowns of unsellable inventory, and you get a $0.84-per-share GAAP loss. Ouch.

To be fair, Pier 1's management has delivered on some of its promises. Back in January, the executive team admitted that its wares had gone out of style, and promised to lower store-level inventories by about 15% in order to improve the company's ability to change with the times. Inventories today are indeed 14.9% lower than last year, but the plan hasn't translated into better sales yet.

Target (NYSE:TGT) is still eating some of Pier 1's lunch, and even Wal-Mart (NYSE:WMT) has started to encroach on the company's moderately upscale furnishings territory. Either Pier 1 must do a better job of advertising its new product lines, or consumers have seen the new goods and decided that they're still not interested. Either way, the current plan doesn't seem to be working, and the company is bleeding red ink to the tune of $118 million in negative free cash flow for the six months ending Aug. 26, 2006. The balance sheet isn't strong enough to keep that up for long, and the faster the company can break out of this funk, the better. Good luck with that.

Tag -- you're it!
Our next stumbler is industrial tag specialist Brady Corporation (NYSE:BRC). Brady brought in $288.3 million in gross sales this quarter, 37% above the year-ago haul and much higher than the average analyst expectation of $268 million. GAAP earnings soared by 40% year over year to $0.43 per diluted share, but still fell a penny short of analyst expectations.

Don't worry if you've never heard of Brady. You're not likely to see many companies with nearly $2 billion market caps more obscure than this. The company certainly meets the "boring industry" Peter Lynch criterion, and the company's name would probably appeal to Peter's obscurity-loving side, too. Providing the nuts and bolts to other businesses just isn't sexy. It's somewhat surprising to see that as many as five analysts follow the company anyway.

That is, until you start paying attention to Brady's performance. Trailing net margins have remained steady at 10% for two years running, up from 3.9% in 2003, while revenue has grown at least 21% annually since that year. It's true that most of the revenue growth has come through acquisitions, but 8% organic sales growth is nothing to sneeze at. Brady is expanding into new markets like India, China, and Slovakia, and management says tells us to expect another year of 25% revenue growth. This near-miss performance looks like a mere bump in the road to this observer.

Use the Source, Luke
That brings us to our last example of overpromising and underdelivering this week, Source Interlink Companies (NASDAQ:SORC). The magazine and media distributor reported pro forma earnings of $0.12 per share where analysts wanted $0.16, and its $441.5 million of revenues fell far short of the $471 million analyst target. Year-over-year adjusted earnings per share were flat despite 12.1% higher gross sales. That means lower net margins -- 1.4% now, compared with 1.6% a year ago.

If you've ever wondered who keeps supermarkets, gas stations, and bookstores stocked with magazines, CDs, and DVDs, Source Interlink is pretty much it -- at least if you want to invest in that middleman. Most of its competitors of any significance are privately held. The same can't be said for its customers, however. The company is a significant link in the supply chain for A-list businesses like Barnes & Noble (NYSE:BKS), Walgreen, Toys R Us, both Wal-Mart and Target, and even (NASDAQ:AMZN).

The drop in CD and DVD sales might not come as much of a surprise, given the slow but steady move toward digital music sales and away from traditional CDs. On the other hand, magazine publishers are supposed to suffer from Web-related illnesses as well, right? Yet that segment increased sales by 34% over last year. But of course, there's a logical explanation.

Source Interlink's secret sauce is the acquisition of a couple of large service areas in Southern California and the Washington, D.C., area from closely held competitor Anderson News. The deal cost Source $13 million, plus $26.6 million of debt repayments, with another $14.3 million of promissory notes issued to cover the remaining debt of the acquired businesses. The new service areas ran about $250 million of sales last year, and although management says that the additions shouldn't be expected to contribute at full speed yet, the deal should represent most of the magazine division's sales boost.

I can't imagine investing in a company that derives half of its sales from shipping physical CD and DVD discs around the country. We're just at the beginning of the all-digital revolution in entertainment, and although the digital business model will take a few years to fully blossom, I'm afraid physical media is doomed to extinction sooner rather than later. In five or six years, the CD may seem as quaintly obsolete to us as a vinyl album or cassette tape does today, and the DVD is only a few years behind on that downward curve. You heard it here pretty early in the process. And Source Interlink is one of the middlemen you're eliminating when you download an album or a movie, or read Newsweek online.

That's all, y'all!
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. It'll be fun and educational. Promise.

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Fool contributor Anders Bylund holds no position in the companies discussed this week, and he hasn't bought a magazine in retail for years. The Fool has a disclosure policy, and you can see his current holdings for yourself.