Five Major Companies In Danger Of Extinction: 24/7 Wall St.
1. American Airlines
American's parent AMR filed for Chapter 11 bankruptcy in Nov. 2011. The airline itself still operates largely as it did prior to the filing, but with some of the advantages the bankruptcy of a parent brings. Labor costs will be cut, along with debt service and lease obligations for airplanes. AMR says it plans to emerge from Chapter 11 as a viable airline. But that won't happen. US Airways (NYSE: LCC) has already made it clear that it wants to buy American's assets. As soon as the rumors of a potential buyout started in April, some of American's largest unions said they backed such a plan as a way to protect jobs. Earlier this month, US Airways CEO Doug Parker announced his desire to merge the two airlines. And with US Airways probably willing to give AMR's creditors agood deal to get American's assets, the potential deal received tremendous support from bondholders and analysts. US Airways has much to gain from this transaction as its position in the carrier market has been eroded by the mergers of Northwest and Delta and the later combination of United and Continental.
2. Talbots
Battered retailer The Talbots (NYSE: TLB) is supposed to be taken private by Sycamore Partners for just over $2.75 a share, or $190 million. The offer has been delayed for some reason. Sycamore has already lowered its offer once from $3.05 a share it extended to the company in December. Among all the badly damaged retailers hurt by the recession, compounded by its failure to appeal to consumers with distinctive products, The Talbots has to be near the top of the list. While its shares traded for almost $26 five years ago, the now change hands for $2.50. It is a wonder that Sycamore wants to buy the retailer at all. Even if the deal closes, Sycamore may find there is no solution to making the company viable again. When it last announced earnings, Talbots' management said it planned to close 110 stores. The company also said its would try to find a new CEO. Talbots made only $1 million last quarter on $275 million in revenue. At the same time it announced earnings, it admitted that it could be in default under its debt facilities if its financial condition deteriorated further. The Talbots has been flanked by a number of department stores that carry women's discount ware and a number of niche chains, including Ann Taylor (NYSE: ANN), Chico's and Limited Brands. The company's earnings demonstrate clearly the extent to which customers have abandoned Talbots. Its revenue was $2.3 billion in fiscal 2008, a figure on which it lost money. Annual sales are barely half that now. With the exception of a tiny profit last year, the retailer has lost money every year in the last five.
3. Current TV
Al Gore's Current TV was on life support even before it fired its only bankable star Keith Olbermann in March following a set of battles with the host over his perks. He was replaced by serial talk show host failure Eliot Spitzer. Compared to Olbermann's March figures, Spitzer's ratings in April were down nearly 70%, according to TV audience measurement firm Nielsen. At the time, The Hollywood Reporter wrote, "Replacement Eliot Spitzer pulled an anemic 47,000 total viewers in the first outing of Viewpoint, with just 10,000 among adults 25-54. The weeks since saw an early rebound, particularly in the demo, but in its four weeks on air Viewpoint has steadily declined in both respects." Reuters recently reported that Current TV's audience had fallen enough that cable giant Time Warner Cable may have the right to discontinue carrying the channel. The closest Current TV has to a star is talk show veteran Joy Behar, a former cast member of "The View," who had her own show canceled by CNN's HLN in November. Gore does not have the pockets to keep a network with no future going.
4. Research in Motion
RIM once owned the smartphone market. Its BlackBerry products were largely used by businesses. It is hardly worth repeating the story of how RIM was late to the consumer market where it has been pounded relentlessly by Apple and an army of Google Android phones from manufacturers as diverse as China's HTC, South Korea's Samsung and Motorola in the U.S. The pace at which the company fell apart once the process began was even more extraordinary than its rise. Revenue and net income jumped from $6 billion and $1.3 billion, respectively, in fiscal 2008 to $20 billion and $3.4 billion in fiscal 2011. In just the past year, however, the company has warned twice that it would miss its earnings forecast; replaced its long-time CEO; warned a third time about its first quarter loss; and disclosed plans for layoffs of thousands of employees. The company's board said it was reviewing "strategic options," which would include a sale. The best measurement of the swiftness of RIM's fall is the change of its share of the U.S. smartphone market. Research group NPD recently reported that RIM's U.S. market share was 44% in 2009 but only 10% last year. Other data from research group Comscore shows that share has fallen further this year. The net effect on RIM's stock price has been devastating, taking it down from $144 four years ago to $11 recently. RIM cannot survive as a standalone operation in the face of these trends. The Wall Street Journal recently reported "outright buyers could include Asian handset makers like HTC Corp or online retailer Amazon.com Inc. which has jumped into the tablet business."
5. Pacific Sunwear
Pacific Sunwear built its reputation on offering "California-style" accessories, primarily sunglasses, shoes, and swimwear. The company was started in a surf shop in Newport Beach in 1980. Recently, highly regarded corporate balance sheet and earnings research firm GMI Ratings put Pacific Sunwear of California on its list of companies at risk of going bankrupt. The results of that analysis should come as no surprise. Five years ago, the company's stock traded for $23. Recently, it dropped to $1.50. In its last reported quarter, Pacific Sunwear lost $15 million on revenue of $174 million. The retailer's cash and cash equivalents dropped to $22 million from $50 million at the end of the immediately previous quarter. Pacific Sunwear management said the company would have a non-GAAP net loss in the current quarter as well. Pacific Sunwear also disclosed it had a new line of credit with Wells Fargo. Its comments about the loan in its latest 10-Q were telling, "if we were to experience same-store sales declines similar to those which occurred in fiscal 2010 and 2009, we may be required to access most, if not all, of the New Credit Facility and potentially require other sources of financing to fund our operations, which might not be available." Why is the company in so much trouble? It is too small and is in a commoditized business. Nearly every major department store chain sells products similar to the ones that Pacific Sunwear does, and so do a large number of niche retailers. Pacific Sunwear, meanwhile, has only 729 small stores. What will happen to the retailer? It could be bought by a larger company -- its market cap is only $108 million -- or it may go out of business with its inventory sold to other retailers.
24/7 Wall St. | By Douglas A. McIntyre Posted: 06/21/2012 11:01 am Updated: 06/21/2012 6:29 pm
Each year, 24/7 Wall St. identifies 10 important American brands that we predict are going to disappear within a year. This year’s list reflects the brutally competitive nature of certain industries and the reason why companies cannot afford to fall behind in efficiency, innovation or financing.
American Airlines will disappear in 2013 because of its inefficiency. It was the premier carrier in the United States for almost 30 years -- even surviving through periods during which most other carriers went bankrupt. However, it lost its critical advantage of scale when Northwest merged with Delta (NYSE: DAL) and Continental merged with United (NYSE: UAL). Within two years, American became a medium sized carrier.
Research in Motion (NASDAQ: RIMM) may be the best example of an innovative company that lost its edge. As a result, it will disappear in 2013. Five years ago, RIM was the only smartphone of any size and had almost the entire corporate market. But it made one mistake: it failed to adapt its technology for consumer use. In June 2007, Apple (NASDAQ: AAPL) launched the iPhone and the rest is history.
Pacific Sunwear (NASDAQ: PSUN) no longer has the capital to compete. The retailer will be gone by the end of 2013. In the company’s most recent 10-Q, it said one of its biggest risks was running low on capital and not meeting financial obligations.
We made many accurate calls last year, but the speed with which some of them came true was surprising. MySpace was sold by News Corp. less than a week after our list was published.
Several other 2011 nominees are also no longer. Saab filed for bankruptcy only five months after 24/7 published last year’s predictions The car company has been sold yet again to an investment group called National Electric Vehicle Sweden (NEVS), probably for little more than car parts.
In Nov. 2011, Ericsson dumped its half of the Sony Ericsson mobile phone business, apparently aware of something that Sony has yet to realize -- the smartphone industry is owned by Apple and Google’s (NASDAQ: GOOG) Android-run phones. Similarly, Yum Brands! (NYSE: YUM) dumped A&W as sales were miniscule compared to flagship brands KFC and Taco Bell.
A few of the companies we said would vanish are still operating -- barely. American Apparel is now a penny stock. Nokia is another company 24/7 still predicts will go away soon. The former Finnish heavyweight just fired 10,000 employees, or 20% of its workforce.
We also made a few bad calls. Sears and Sony Pictures are still operating in essentially the same form they were a year ago. Kellogg’s Corn Pops and Soap Opera Digest are doing just fine.
This year’s 10 Brands That Will Disappear continues to take a methodical approach in deciding which brands will be on the list. The major criteria are: (1) a rapid fall-off in sales and steep losses; (2) disclosures by the parent of the brand that it might go out of business; (3) rapidly rising costs that are extremely unlikely to be recouped through higher prices; (4) companies that are sold; (5) companies that go into bankruptcy; (6) companies that have lost the great majority of their customers; or (7) operations with rapidly withering market share. Each of the 10 brands on the list suffers from one or more of these problems. Each of the 10 will be gone, based on our definitions, within 18 months.