What Was Wall Street Thinking? Kardashian Sues, Wynn Rants, and More
Companies do the darndest things, such as these surprises, blunders, and just flat-out boneheaded moves from last week.
Kardashian's Naval Maneuvers
Celebrity gossip site TMZ.com is reporting that Kim Kardashian is suing specialty retailer Gap (GPS) over an Old Navy ad that aired this year starring a Kardashian lookalike.
The initial public reaction has been outrage -- at Kardashian. How can someone trademark a look? Doesn't she already have enough money? Kim's the pretty sister. Right?
I wonder how many of the Kardashian-bashers have seen the televised spot. It's not just a dead ringer for Kardashian; the commercial's actress sings about being a celebrity. A lot of people apparently genuinely believed it to be Kim, and it's easy to see how appearing to endorse "super cute" jeans at apparel discounter Old Navy can get in the way of her existing endorsements.
TMZ is claiming that Kardashian is suing for as much as $20 million. The sum does seem outlandish, but what was Gap thinking when it went with a Kardashian lookalike and supposedly posted as such on Twitter?
Wynn or Lose
Everybody loves a charismatic CEO, but can a politically charged helmsman take things too far?
Sponsored Links
Casino mogul Steve Wynn took some jabs at President Obama during Wynn Resorts' (WYNN) quarterly conference call last week.
"The business community in this country is frightened to death of the weird political philosophy of the President of the United States," he said during his rant to analysts and investors. "Until he's gone, everybody's going to be sitting on their thumbs."
He also went on to call the Obama administration "the greatest wet blanket to business and progress and job creation" in his lifetime, solely blaming Obama for the fear in this country.
Do you agree or disagree with Wynn? You're welcome to chime in with your opinion in the comment box below, but you're probably not the CEO of a gaming giant that may have just alienated half of your investors and a decent chunk of your clientele by taking political sides in a corporate forum.
A Taxing Dilemma
Are some companies hiding behind kinder taxing situations? Microsoft (MSFT) and Travelzoo (TZOO) posted quarterly results last week where the bottom lines were padded thanks to sharply lower effective tax rates. Since too many investors -- and financial journalists -- like to boil things down to ultimate profitability, are they accurately reporting the full picture?
Let's start with Microsoft. The world's largest software company seemed to impress analysts by posting a 30% spike in profitability. However, not too many of the outlets covering Mr. Softy's financials bothered to point out that Microsoft paid less than a third of the taxes that it did during last year's quarter. (That didn't get by our own Eric Bleeker, who pointed out Microsoft's tax dodge right here on these pages last week.) Eliminate the taxing difference by going a couple of lines higher on the income statement, and the company's operating profit rose by a less than inspiring 4%.
Travelzoo's 51% bottom-line pop wasn't enough to please analysts that were expecting profitability at the travel deals publisher to nearly double. It could have been even worse. Travelzoo's European operations recently turned profitable, yet losses it was incurring overseas a year ago can't be used to offset taxable gains closer to home. Its effective tax rate has gone from a deceptively high 46% during last year's second quarter to 36% this time around. If I've lost you on the taxation differences, all you need to know is Travelzoo's pre-tax profits only climbed 28% higher in its latest quarter.
I'm certainly not taking Microsoft or Travelzoo to task over this, though the companies could be doing a better job of getting these points across. Financial reporters aren't sleuths.
Crossing the Borders
The fire sale for bankrupt bookseller Borders is now officially an inferno. After failing to land a buyer with plans to keep the bookstore chain in operation, Borders is in the process of closing down its remaining 399 stores.
Shares of Barnes & Noble (BKS) surged on the news, but why? Liquidating hundreds of Borders' locations will hurt Barnes & Noble in the near term. Anyone looking for books will gravitate to the place marking them down in a "going out of business" sale. Bulls will argue that Barnes & Noble will thrive once Borders is gone, but isn't this really proof that real-world books are going the way of CDs and DVDs toward a slow path to extinction?
Circuit City's vaporization didn't help Best Buy (BBY). When Tower Records closed up shop five years ago, it didn't exactly open the door for Virgin megastores.
Barnes & Noble has the popular Nook e-reader, but the company will be in a bind when it has to begin closing stores, too.
Get info on stocks mentioned in this article:
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this story. The Motley Fool owns shares of Microsoft, Best Buy, and Gap.
