1. Lukewarm Java
A heat wave is cooling Wall Street's ardor for
Investors fled shares of the Seattle-based coffee chain Thursday on word of a slowdown in sales growth. Starbucks
shocked fans Wednesday afternoon by saying July sales in stores open at least a year rose just 4% -- shy of the expected 6% to 7% gain.
Starbucks is full of surprises, though. Conference call participants learned, for instance, that it has been really hot outside this summer. So consumers have taken the unprecedented step of ordering cold drinks -- even in the morning.
This is a development that Starbucks hadn't anticipated.
"While we do not generally like to talk about weather as an impact on our business," finance chief Michael Casey explained on a postclose conference call Wednesday, the hot summer has meant "there was more of a shift from hot espresso beverages to cold Frappuccino-type beverages in the morning peak." Cold drinks take longer to make, so lines grow, scaring off some customers.
Casey allows that Starbucks overlooked this novel trend because "quite honestly ... we did not look hard enough." He says the company could have "accelerated the rollout of the cold beverage stations" had it known earlier.
CEO Jim Donald isn't discouraged, though. Perhaps making up for lost time, he has been furiously pounding the pavement, collecting invaluable intelligence.
"This morning at 5:45 a.m., across the street in Seattle, I stood in line as a group of customers were buying our juice-blended Frappuccinos, six of them, at quarter-to-six in the morning," Donald told rapt listeners Wednesday afternoon. "It was perfect timing for me to be a part of that."
No, Jim, perfect timing would have meant being a part of it three months ago.
Dumb-o-Meter score: 95. "We were somewhat surprised that the need stage for this happened earlier in the day," Donald notes on the seekingalpha.com transcript of the call.
To view Colin Barr's interview about the Five Dumbest this week, please click here
2. Sprint Pulls Up Lame
The Reston, Va., telco stumbled Thursday with a
sluggish second-quarter earnings report. Shares sank 16% in heavy trading after Sprint missed estimates and outlined serious problems in its crucial wireless business.
"We achieved higher-quality post-paid additions in the quarter, but we did not meet our expectations on quantity," CEO Gary Forsee said in a morning statement.
Sprint did indeed fall short when it came to quantity. Where analysts were looking for the company to add 1.2 million wireless users, Sprint got only 708,000. The poor showing suggests that users in Sprint's recently acquired Nextel business are fleeing to the Verizon Wireless venture of
, punishing Sprint's profit margins.
"In addition," Forsee adds, "we had higher-than-anticipated migrations in our base to lower-priced service plans."
To forestall further migrations, Sprint pledges to undertake a "series of actions that we will take to improve our competitiveness and accelerate value creation." Those include improving marketing, restructuring operations and increasing network investments.
And laying out plans for a $6 billion buyback, Forsee explains, "We are now able to focus on creating value by providing direct returns to our shareholders."
Not a moment too soon, obviously.
Dumb-o-Meter score: 91. "Sprint's mobile broadband leadership is demonstrated by our success in rolling out the largest network, providing the latest devices and the widest array of mobile entertainment and business content," the company claims in another release Thursday.
3. Driven to Distraction
backers are wearing blush again.
Shares dropped 10% Monday to $29 after the cosmetics giant unveiled its latest
ugly earnings report. Second-quarter profit plunged 54% from a year ago, as ad spending surged and sales growth remained blotchy.
Avon has been working on a $500 million restructuring that will eliminate countless management and rank-and-file jobs. Even so, hefty costs have the New York-based company studying a possible pay cut for overseas sales reps.
"This analytical work on the representative value proposition is a very high priority for us during the upcoming quarters," CEO Andrea Jung said on a Monday morning conference call,
Another high priority is figuring out how to get men to buy cosmetics. Avon's answer to that riddle is a scent called Driven, endorsed by New York Yankees shortstop Derek Jeter. The fragrance, "a blend of chilled grapefruit, clean oak moss and spice," will go on sale in November, Avon says.
Avon investors must be hoping Driven smells sweeter than another recent Jeterendorsement.
XM Satellite Radio
hired Jeter last November to promote its major league baseball programming.
"Derek Jeter is a phenomenal athlete ... and an ideal choice to help promote XM's unparalleled, year-round MLB coverage," XM chief Hugh Panero said on Nov. 21, 2005. Since then, XM shares have lost more than half their value. They recently hit a three-year low before bouncing back to around $12.
Avon remains hopeful. "This partnership," Avon exec Liz Smith said in a press statement Monday, "will truly take our men's business to the next level."
Hopefully that isn't XM's level.
Dumb-o-Meter score: 90. Another blemish at Avon.
4. Crack Team of Professionals
can't connect with investors.
This week the Holmdel, N.J., Internet phone company posted a
steep second-quarter loss. Revenue more than doubled from a year ago to $143 million, as the company added a million subscriber lines over the last 12 months.
Other trends were less encouraging. Vonage is paying bigger bucks to attract each new user, but more customers are dropping the service each month. Vonage doesn't expect to make money, even on a so-called adjusted operating basis, till 2008. Its shares fell 7%, putting them down more than 60% since their May 24 initial public offering (IPO).
Yet CEO Mike Snyder casts the latest developments in historic terms.
"This quarter represents an important milestone for Vonage, as we begin to report our results as a newly public company," Snyder said in a press release Tuesday morning. "We also see this quarter as a key inflection point on our path to profitability."
Another key inflection point may come when Vonage gets people to actually pay for shares. Tuesday's report shows fully a quarter of participants in Vonage's
heavily criticized customer IPO plan "failed to pay for and accept delivery of such shares."
Deadbeats have now cost the company some $18 million, though Vonage promises "to pursue the collection of monies" from those who reneged. The company continues to defend the program, which saw more than a million shares go unclaimed amid
expressions of shareholder outrage.
"We believe that the directed-stock program was the right thing for shareholders because of the huge amount of interest," Snyder said on a conference call Tuesday,
reports. "We tried to do the right thing, and we gave them a first crack at it."
Seems like some angry users would prefer to take a crack at Vonage itself.
Dumb-o-Meter score: 88. "Improving our performance in customer care is the single most important priority for us," Snyder insists.
5. The Bain of Shareholders' Existence
Private equity investors are taking another bite out of
The Miami-based burger broiler
swung to a fiscal fourth-quarter loss Tuesday. Burger King posted a 6% revenue gain in the latest quarter, but same-store sales growth came in at just half of what analysts were expecting. Shares dropped 12%.
Setbacks are nothing new at Burger King, which is still reeling from the
demands of its private-equity sponsors at Texas Pacific, Bain Capital and Goldman Sachs Funds. Burger King raised $393 million in a May 18 initial public offering, but most of that cash was earmarked to pay off debt incurred in handing the private equity group a fat $367 million dividend.
Shares have now lost 20% of their value since Burger King came public. But CEO John Chidsey -- Burger King's 11th chief in 17 years -- sounds optimistic.
"As we build on the success of our Go Forward Plan, the business continues to deliver strong results as demonstrated by the 24% growth in our adjusted income before taxes from our business," he said in a statement Tuesday. "Further, it's been more than a decade since the company has enjoyed 10 consecutive quarters of positive comp sales growth worldwide."
It has probably been even longer since an underperforming company made a select group of its backers so happy. The latest quarter, after all, featured yet another sweet payday for Texas Pacific, Bain Capital and Goldman Sachs Funds.
"Unusual items," Burger King notes in detailing latest-quarter expenses, include "a one-time management termination fee of $30 million."
Management termination probably strikes Burger King shareholders as a good idea about now.
Dumb-o-Meter score: 85. Investors in the IPO aren't having it their way.
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