While hot and cold earnings growth is the norm, the persistent earnings lull since early 2015 has slowly but surely ground some companies into submission … and to the brink of insolvency. Some of them won’t be able to step back from the edge of the cliff before they fall off of it.
Which companies will go bankrupt? Nobody knows for sure until after the fact. Firms that look like they’re just about to collapse do occasionally snatch themselves from the claws of defeat. And from time to time, you get a surprise — such as GT Advanced Technologies, which while troubled, still stunned the business world when it filed for Chapter 11 bankruptcy protection.
Still, the best way to know what companies are on the road to bankruptcy is to simply look for signs of trouble. Some outfits are clearly fighting an uphill battle, and it’s going to take a miracle to stop the fiscal bleeding before it’s too late.
Here’s a closer look at seven of the market’s more vulnerable organizations.
Companies That Could Go Bankrupt: Sears (SHLD)
One would think after 11 years of trying and billions of dollars raised through the sale of the company’s real estate and businesses, Sears Holdings Corp (NASDAQ:SHLD) CEO Eddie Lampert would have finally figured out how to at least tread water.
One would be wrong.
The struggling retailer reported its second-quarter numbers this week. It lost another $395 million, and is down to a few scraps in the bank.
It’s not as if Sears just happens to be going through a rough patch — that’s the norm. Since 2011 it’s lost more than $8 billion, unable to find its retailing mojo.
Lampert, of course, is quick to point out that SHLD can sell more assets, and the company can tap into its credit line to solve any liquidity problems. Those creditors are growing just as concerned as Sears shareholders, though, that the department store chain is running out of pieces of itself to sell and has yet to shore up the leak in the boat.
Companies That Could Go Bankrupt: Jamba Juice (JMBA)
Yep, the juice joint under the Jamba, Inc. (NASDAQ:JMBA) corporate name is still around, though maybe not for much longer.
Jamba Juice was the big name in freshly squeezed treats and then smoothies. But the whole premise lost its luster as alternatives started to pop up — everywhere — and started to chip away at sales.
That drag reached a critical mass last year, when revenue fell from 2014’s top line of $218 million to $162 million (a 25% plunge).
Although Jamba still managed to eke out a small profit on those tepid sales last year, it has been in the red for the first two quarters of this year. In May, JMBA finally recognized something needed to change, so it restructured some of its management team and established a Jamba Whirl’d support center in Frisco, Texas. The whole thing feels a bit too little, too late, however, now that Jamba down to its last $16 million worth of cash and is still shedding sales in a big way.
Jamba could take on debt if need be; it has none right now. Lenders are going to want to see reasonable hope for growth, though, and Jamba doesn’t have it to show.
Companies That Could Go Bankrupt: Ocean Rig UDW (ORIG)
Ocean Rig UDW Inc. (NASDAQ:ORIG) isn’t exactly a household name. Indeed, with a market cap of only $71 million, it’s likely most investors have never even heard of it.
On the other hand, two years ago ORIG shares were trading above $18 versus their current price of 86 cents. It was hit especially hard when oil prices imploded, and the stock’s 95% plummet merely reflect the meltdown of its contracted oil drilling service.
Curiously, Ocean Rig UDW is still reporting profits, so what would lead anyone to entertain the notion of a bankruptcy filing in the near future? The biggest reason is simply that the company brought it up in its most recent quarterly report, saying:
“Given the ongoing distressed market environment as well as the consensus view that a recovery may not occur for several years, we have engaged financial and legal advisors to assess the viability of our capital structure and alternatives that may be available to pursue. … While we have not made any specific decisions, it is evident to the Company and a number of its creditors that its debt obligations will need to be amended or exchanged for new debt and/or equity securities, and some debt holders may have little or no recovery on their investment. We continue to explore and consider alternatives, which may include a possible reorganization under US bankruptcy laws.”
No company even puts the notion out there if it’s not a serious concern.
Companies That Could Go Bankrupt: BlackBerry (BBRY)
Whereas Ocean Rig UDW is a name not many will recognize, BlackBerry Ltd (NASDAQ:BBRY) is a name everyone will recognize. And those investors who know BlackBerry might respectfully disagree, explaining that the company has a whopping $2.2 billion in the bank and could ride out a long storm.
Those supporters are correct too … $2.2 billion is a lot of money, which could be used to continue making acquisitions of revenue-bearing companies as it already has of late, picking up AtHoc, Good Technology, WatchDox and Encription in just the past year, give or take.
Take a closer look at BlackBerry’s revenue trend, however, even after it began making acquisitions. The prior quarter’s top line fell 39% to $400 million, and the company’s loss widened to a hefty $670 million after revenue and income started to slump the quarter before. The bulk of that loss was operational too, meaning it can’t be blamed on the costs of the acquisitions.
BlackBerry’s shares were halted briefly Friday before it announced it would be redeeming convertible debentures and issuing new ones. It’s a change for the positive, but it’s hardly enough. If something big doesn’t change fast, that $2.2 billion could evaporate faster than most care to believe.
Companies That Could Go Bankrupt: Rosetta Stone (RST)
There’s no denying Rosetta Stone Inc (NYSE:RST) was once the go-to source for learning new languages quickly and easily. The rise of the internet planted the seeds for the rise of alternatives, though, and Rosetta Stone hasn’t been the same since.
More important, Rosetta Stone hasn’t been profitable since. The last time RST turned an annual profit was when it banked $13 million in 2010. Last year, Rosetta Stone lost $46.8 million, and nothing has gotten any better this year. In fact, revenue is still shrinking, and the losses are getting bigger.
To its credit, RST has very little debt — $2.9 billion — and the $30 million it has in cash and near-term investments could hold it over for a while. It has to start turning a profit via sales of its learning tools sooner than later, though, because a lender isn’t going to fund a money-losing product.
Companies That Could Go Bankrupt: Stone Energy Corporation (SGY)
Another victim of crude oil’s implosion, Stone Energy Corporation (NYSE:SGY) has been pushed to the fiscal brink.
Just earlier this week, SGY shares jumped on the heels of the company’s raised production outlook for the quarter currently underway, fueled by rising crude oil prices. It’s a bit too soon to say oil’s rally is built to last, however. And even if it is, it would take a massive move to pull Stone Energy back into the black. The now-$60 million company has lost nearly one billion over the course of the past four quarters.
Oh yeah. SGY also has $1.4 billion in debt, and only $169 million in cash.
Stone Energy Corporation has already been in talks with its creditors, hoping to restructure all of that debt. It’s also mulling the sale of $350 million worth of assets to remain afloat. The proceeds from that sale would be used to pay debt rather than grow the business, though. Once a company reaches that point, the chances of digging its way out are alarmingly low.
Companies That Could Go Bankrupt: Bebe Stores (BEBE)
Last but not least, while department stores have been dealing with a tough undertow of late, the environment has been downright brutal for the smaller, fashion-oriented retailers.
Among the hardest-hit has been Bebe Stores, Inc. (NASDAQ:BEBE).
Bebe hasn’t been profitable since 2012, and it’s not a “just barely” situation either. The retailer has lost $58 million over the course of the past four quarters, and it’s still losing ground. The most recently reported quarter’s top line was down 13%. Some of that is due to store closings. A lot of it, however, is just weak demand. In the same quarter sales fell 13%, same-store sales were down 8%.
Down to its last $60 million or so (it pocketed $35 million in June to enter a joint venture with Bluestar Alliance LLC) and losing several million dollars per quarter now, the outlook is grim.
Although the venture authorizes Bluestar Alliance to sell Bebe-branded merchandise and drive royalty revenue to Bebe as a result, many of the company’s eggs are in that basket that may or may not yield big results. Indeed, sales of Bebe-branded merchandise may end up marring the brand and crimping store sales.
Whatever the case, the outlook doesn’t look encouraging. Macroaxis says there’s a 42% chance of bankruptcy within two years.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.