3 Moribund Companies That Have Come Back From the Dead

Jacob Harper |

Barnes  NobleBarnes and Noble (BKS) announced its time for a change in strategy, and it can’t come quick enough. Following reports that their e-reader the Nook had dropped in sales 34 percent, while sales of rival Amazon’s Kindle actually grew. As a result of the poor sales, Barnes and Noble decided to spin off their e-reader division to another company. Their stock plummeted on the bad news, dropping 17.06 percent to close out at $15.61 a share.

But it’s not just Barnes and Noble’s failure to break into the tablet market that’s got the big box retailer in trouble. Overall sales declined 10%, due both to encroachment from Amazon and store closings. According to a spokesperson, Barnes and Noble has been closing around 15 stores a year for a decade, and that number will start rising.

Barnes and Noble is looking more and more like Blockbuster: an obsolete company on the path to bankruptcy. But a company can turn things around – if (like Barnes and Noble is claiming they are doing) they rethink their entire strategy.

We decided to look at three other companies that seemed down and out and have been able to resuscitate, to see what Barnes and Noble can learn from companies that are taking a nosedive.

JC Penney (JCP)

The Fall:

The beleaguered former retail giant has had a rough patch indeed. Last year former CEO/Apple (AAPL) marketing guru Ron Johnson instituted unpopular policies like dropping brand St. John’s Bay and eliminating sales. He was let go in April. The recovery from the Johnson era has been costly, with a $348 million dollar loss reported in the first quarter of 2013.

The Turnaround:

Following Johnson’s ouster, analysts began to reconsider the prospects of the once-moribund company. One of the reasons was the very nature of giant department stores like JC Penney: they’re giant, and thus sit on a ton of real estate.

The 306 stores JC Penney owns, along with its Plano, TX headquarters, was valued at 4.06 billion. JC Penney was able to leverage that real estate into securing a 1.75 billion dollar loan from Goldman Sachs.

They rehired CEO Mark Ullman, and refocused by becoming the anti-Apple: instead of no sales, they’re planning 26 promotions a year. And it seems like the strategy for department stores to double down on discounts might work. Sterne Agee analyst Charles Grom is very high on the stock, and picks JC Penney to eventually hit $23 a share (it currently sits at $16.)

Trans World Entertainment Company (TWMC)

The Fall:

Trans World Entertainment runs music stores, and its no secret that brick-and-mortar retail companies are in big trouble, for much the same reasons Barnes and Noble is: Amazon (and iTunes.) In 2010, Trans World had 540 music stores, including the brands fye, Camelot, and Sam Goody. In 2012 they had just over 300.

The Turnaround:

Trans World is sitting near their 52 week high, at $4.96 a share. This is largely attributed to the fact that unlike trends in how music is bought, real estate never goes out of style. They are a music retailer, but it's the real estate they owned that might have saved them.

In 2007 Trans World bought a parcel of land in South Beach, Miami FL for $8 million. Last year, they sold that same parcel for $30 million, and used the proceeds to distribute special dividends to stockholders at the end of 2012 and reinvest in their music division. According to the New York Times, analysts estimate the company will be profitable again by the end of 2013.

Priceline (PCLN)

The Fall:

Priceline was a victim of the very first tech bubble in the late 90s, and things got worse when American traveling tapered off following 9/11. Priceline made mistakes common to early internet travel bookers: they simply charged too much for a service the economy would demand be cheap, cheap, cheap.

The Turnaround:

Priceline took a look at their business model and decided they needed to adapt. They eliminated booking fees to lower prices. Then they expanded into international markets. Both decisions have been a giant boon. In November 2008 Priceline sat around $52 dollars a share. It now sits at $809.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
PCLN The Priceline Group Inc. 1,557.98 9.31 0.60 333,919
BKS Barnes & Noble Inc. 13.10 -0.05 -0.38 977,269
TWMC Trans World Entertainment Corp. 3.45 0.05 1.47 3,842
JCP J.C. Penney Company Inc. Holding Company 10.21 -0.35 -3.31 15,424,406
MHGC Morgans Hotel Group Co. n/a n/a n/a 0

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