It doesn't take an auto repair shop in an old Circuit City building or a "for lease" sign over the QuickDrop slot in an old Blockbuster storefront to remind consumers that even the strongest companies can be bowed by bankruptcy.
Blockbuster's video empire and A&P's nearly 150-year-old food retail business were among the businesses that declared bankruptcy this year, but were far from the only ones in financial peril. The Street took a look at some companies' recent struggles and identified 10 for whom bankruptcy may be beckoning, either next year or the not-so-distant future. Some balance sheets and share prices hide the pain better than others, but all of the following have fundamental flaws in either their business plan or management that lead to situations like A&P and Blockbuster's -- where what was unthinkable even five years ago seems inevitable soon enough.
AOL (AOL) went out and bought itself TechCrunch and blew out its Patch network of hyperlocal news sites. Google (GOOG) watched monthly sales of smartphones with its Android OS soar past Apple (AAPL) and Research In Motion (RIMM) and acquired 25 companies this year alone. Yahoo? (YHOO) Well, CEO Carol Bartz told a TechCrunch editor to "f--- off" when he questioned her progress since replacing Jerry Yang last year. And they've got Associated Content now. That's something.
Forget just for a moment about Yang's egomaniacal gaffe two years ago when he got a huge offer from Microsoft (MSFT) and told the folks in Redmond, Washington, to take it walking. Forget that Yahoo has lost more than 55% of its share value in five years. Yahoo's every move this year -- making only four acquisitions; launching a Local Offers service with Groupon and other services long after the launch of competitors such as AOL's Patch and Facebook's Deals; and entering into an IM deal with smartphone market share-losing Nokia (NOK) -- is several steps behind everyone else. Yahoo has some great holdings, such as Chinese e-commerce site Alibaba, but it's shown no desire or ability to do anything with them. A sale of the entire company still isn't out of the question, as shareholders have to be weary of Yahoo being unable to adequately monetize its best commodities and mismanaging its company into the grave.
So let us get this straight: Your company's trading at just over a dollar a share on a good day, former CEO Ron Marshall found a gig at bankrupt A&P more promising and Borders (BGP) as a whole has struggled through recent rounds of layoffs and at least 180 Waldenbooks store closures -- and shareholder William Ackman still thinks it would be a great idea to buy Barnes & Noble (BKS)? That kind of ink-sniffing logic, and Borders' management's support of it, makes even the most patient reader want to flip to the end of this sad chapter. In multimillion-dollar debt, facing increasing e-book competition from Amazon (AMZN), Apple and Google and watching its Kobo e-reader mire itself in fourth place or worse among competitors such as the iPad and Kindle, Borders and its shareholders can't honestly expect this literary mega-merger to reach a promising conclusion when their company can't even read the writing on the wall.
Walgreens just took over Duane Reade and grabbed a huge foothold in New York, ever-expanding CVS Caremark (CVS) sits at No. 18 on the Fortune 500 and Walmart (WMT) and its discount prescriptions continue to elbow their way into traditional health, beauty and pharmacy strongholds. How does primarily East Coast Rite-Aid respond? By cutting guidance, continuing losses that extend back to its 2007 purchase of Brooks Eckerd, giving up South Carolina locations to SuperValu's (SVU) Sav-A-Lot stores and shuffling the deck chairs by moving Chief Operating Officer John Standey to chief executive and keeping former CEO Mary Sammons on as chairman. Though stock prices have rebounded from last year's low of 20 cents, Rite-Aid is still trading under a dollar as the company deals with crushing debt. Rite-Aid says it will fill fewer prescriptions than previously expected in fiscal 2011, which is just as well -- there doesn't seem to be any cure for what's ailing this company.
There are three words you never want to hear from your cable company: "Buy an antenna." At the height of its standoff with News Corp's (NWS) Fox holdings this October, that's exactly the advice Cablevision (CVC) gave customers who wanted to watch the World Series. It was just the latest in a series of spats that pit the Cablevision-owning Dolan family against the world, yet Cablevision's share price just hit a 52-week-high this month after climbing more than 34% this year. It matters little that Cablevision's Optimum Lightpath communication services are adding subscribers and revenue, though, while the cable service loses subscribers and squeezes the ones that remain for more money. With the mercurial Dolans at the helm, shareholders can expect more of the erratic conditions that dropped stock prices like disgruntled subscribers last year -- when shares cratered at just above $10 after peaking just above $38 two years before. Stability isn't something Cablevision's known for, either in its service or on its books, and investors saddled with such loose-cannon ownership should have bankruptcy in the back of their heads at all times.
Time Warner (TWX) may finally be atoning for the past after its split with AOL last year, but AOL's upward trajectory compared with Time Warner's uncertain and somewhat stagnant path has to be troubling for even the staunchest supporters of this media titan. DVD sales continue to suffer, streaming is cutting into Time Warner's take and while viewers wait for that HBO streaming venture, properties such as General Electric (GE)-owned NBC, Fox and Disney (DIS)-owned ABC's Hulu joint venture, and Netflix continue to take turkey off Time Warner's plate. Regardless of the might of current holdings such as HBO, Turner Broadcasting and Warner Entertainment, Time Warner still has billions worth of debt and that little Time portion that's turning into a big, paper-weighted drain. Bankruptcy? Improbable, but not out of the question.
Barneys New York
One would have thought one bout of bankruptcy in the 1990s would have been enough, but this luxury clothing retailer's unrequited flirtation with profitability and high-profile shakeups in leadership don't exactly inspire confidence. New Chief Executive Mark Lee and new Executive Vice President Daniella Vitale helped Gucci weather economic instability by shifting its focus from superluxe to low-end, which is ostensibly the feat they're being asked to repeat at Barneys. The problem is that Barneys parent company Istithmar World Capital -- which is a branch of the Dubai government -- really wants to see a return on the $950 million it spent to keep Barneys afloat when it came aboard in 2007. Istithmar had to spot Barneys even more cash to fulfill shipping requirements late last year though, and a rumored buyout by Canadian department store Holt Renfrew never materialized. Investor Ron Burkle took over half the company's debt and may be a potential buyer, but if Lee and Vitale can't turn things around, a second bankruptcy could be more costly than the wares on Barneys' floors.
Hey, remember when this company used to be innovative? Seriously, this company counts Bell Labs among its holdings and it's still getting its clock cleaned by the likes of Cisco (CSCO) and Oracle (ORCL)? Alcatel-Lucent's (ALU) share price has dropped from $16 to less than $3 in five years and more than 20% in the past year alone. It is billions in debt and has nothing on the slate that's impressing anyone. Its management seems to know little about current technology and telecommunications and has reduced a once-brilliant company to a starving Tyrannosaurus dying of starvation with the rest of the dinosaurs.
Oh, the share price on your little transitional technology is up 130% this year? Here, have a cookie. We don't know why Sirius (SIRI) re-signed Howard Stern when it's much more fun to listen to pumping-and-dumping fanboys rattle on about doomsday royalty scenarios that will supposedly destroy Web radio services such as Pandora and Like.FM -- not when their own product hinges on sales by auto partners and the free trial memberships that go along with them. It's not good enough to say Sirius-XM has such unrivaled talk and sports lineups when any dope who knows how to download a podcast can get similar or better talk-radio content, and anyone with a smartphone or app-enabled MP3 player can access sports broadcasts directly from league or team sites.
Here's the truth: We're nearly a decade into this technology and the company that has the monopoly on it is billions in debt, is still at less than $1.50 per share and faces increasing competition from cloud-based Web newcomers such as Slacker radio that offer mobility without asking a listener to pay for proprietary product.
There's been good news for Sirius recently, including the recent jump to 20 million subscribers and some consistent profitability, but with a national audience that, even with trial members, is still less than that of Time Warner Cable, bankruptcy remains one of the choices on the dial.
Jamba's (JMBA) losses aren't what they were a year ago, but they're still losses. An unexpected loss in the third quarter after a drop in revenue is typical of what Jamba's shown for the past year -- an erratic, unpredictable path that gave shareholders a 40% return last year, but nearly wiped it all out in 2010. Jamba's bottom line is being thinned out by pressure from a popular smoothie product at McDonald's (MCD) and an economy that's been crushing smoothies, lattes and every other food product that once-conspicuous spenders now deem non-essential. Sadly, Jamba's management hasn't ordered a brain-power stir-in shot to figure out a solution. A fairly one-dimensional business model hasn't helped matters as the life continues to be sucked out of this smoothie stand.
Earnings are up 50% from last year, and television, radio and Internet ad revenues are up as well; a $1.5 billion stock buyback was just announced; and UBS (UBS) just shifted CBS (CBS) to a "buy" rating. How is this company in trouble? Because it really hasn't fixed the problems that plagued it last year when times were tough. Overall revenue is still down year over year and CBS had to jack up affiliate and subscription fees to make up the difference. The company's Simon & Schuster publishing arm continues to be a drag, with revenues down 6%. Oh, and the company's still $6.6 billion in debt.