It happens to every company sooner or later: Somebody sets a mark for quarterly earnings or monthly sales numbers, and the company misses that goal. Whether the target was set by the company's own management, by Wall Street analysts, or by the market at large, that miss can have serious consequences. 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, our steak is burnt, the tea has gone stale, and a there's a bug in our software.
A not-so-fond farewell
Let's kick things off with OSI Restaurant Partners
Comps dropped at all of the company's chains, with the worst slides at Outback Steakhouse and Carrabba's. OSI is planning to take charge of at least $50 million to correct accounting errors related to unused gift cards, and it issued pessimistic forward guidance, to boot.
But it's all academic. OSI is about to go private, so the share price is pretty much locked in until the consummation of that deal, expected in April. Shareholders are getting a 24% premium to the stock price immediately before the buyout was announced, though that's still 15% below the 2006 high. It's too late to do anything about the sorry performance of OSI's stock, but this would be a great time to reinvest those funds in an up-and-comer foodie like Buffalo Wild Wings
Fresh stores beat stale results
We're moving on, then. Next on the list is Great Atlantic & Pacific Tea
Great Atlantic is a bona fide turnaround story after replacing much of its senior executive team in September 2005, and the company is making serious headway in its efforts to tighten up operations. It's just that some observers would like to see even faster results. But the current strategy rests on remodeling stores to a more modern format, and those projects take time. Remodeled stores are showing significantly better results, but performance suffers while each remodeling is taking place.
This is similar to what Delhaize is doing with its Kash n' Karry stores in Tampa. The refreshed Sweetbay stores look and feel like a less-upscale version of Whole Foods
Give the venerable tea peddler some time. This quarter, 11 more locations got their facelifts, and operating income was sequentially better for the sixth quarter running. Trailing revenues are still shrinking, six quarters in a row year over year, but costs are dropping even more quickly. Margins are slowly improving across the board. In short, the company seems to be on the right track.
Hit 'em where it hurts!
Closing out the roundup this week is Lawson Software
Last April, Lawson closed its merger with Swedish peer Intentia AB. Each company brought in about $400 million in revenues per annum before the merger, and $200 million combined in the comparable year-ago quarter. The integration turned out to be painful, with sales dropping to $184 million this time.
Still, there's promise in this business. It's a five-star stock in our CAPS community, where several of our top players have opined that the stock is undervalued, considering Lawson's up-and-comer status. My fellow Fool Rick Munarriz, for example, said that it's "good on its own and it would look nice on Larry Ellison's plate as the next Oracle
The stock is trading 18% below yearly highs today, and the international selling power of the new two-headed beast hasn't come into play yet. Once the merger mayhem is worked out of the system and Lawson can focus on what it does best -- writing software -- we could see a very nice upswing in the share price to match the business performance.
Full speed ahead
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, from the first week of the freshly started earnings season. It'll be fun and educational.
Further Foolish reading:
- OSI: A Farewell Toast
- Lawson: Still a Flat Line
- The Dangers of Discarding Value
- Take Cheap When You Can Get It
Seeking great deals on unfairly punished stocks? Philip Durell and his merry band of Fools at the Motley Fool Inside Value newsletter service are standing by to help you find great stocks at ridiculously low markdowns. Try a 30-day trial subscription to see whether bargain-hunting is right for you. OSI is a current Inside Value selection, pending the private buyout. Whole Foods is a Stock Advisor pick, and Buffalo Wild Wings is a Motley Fool Hidden Gems recommendation.
Fool contributor Anders Bylund holds no position in the companies discussed this week, though OSI headquarters are right out back from where he sits, and he speaks Intentia's language. The Fool has a disclosure policy, so you can see his current holdings for yourself.