> Industry: Computer and electronics retail
> Revenue (last 12 months): $9.5 billion
> 1-year share price change: -21.9%
GameStop’s efforts to break into the digital distribution space, which increasingly drives game sales, have not been successful. Much of this was likely due to the increased use of digital stores available on Microsoft and Sony’s consoles, which allow customers to buy games without buying a physical copy.
The development of digital stores may also hit GameStop’s highly profitable video game resale business, as customers increasingly use streaming services rather than buy physical discs. The emergence of Walmart’s used game program is also a threat.
Gamestop has also been unable to build a successful service like Valve’s Steam, a digital distribution platform for PC games. Valve has developed an enormously popular service, boasting 35 million active users as “the world’s largest online gaming platform,” according to the company.
GameStop’s sales in the most recent quarter were down from the year before, as new software sales declined by more than a third. This is despite the fact that hardware sales received a boost from the November 2013 launch of the Xbox One and PlayStation 4.
> Industry: Leisure products
> Revenue (last 12 months): $6.1 billion
> 1-year share price change: -33.4%
Mattel created the iconic Barbie over five decades ago. But while Barbie was once key to the company’s success, in 2014 the doll has become its albatross. Gross sales of Barbie were down 21% in the third quarter from the third quarter the year before. This was even worse than in the preceding two quarters, when Barbie sales fell 14% and 15% in the first and second quarters, respectively.
Despite the trend, Mattel has expressed its faith in the brand. CEO Brian Stockton told analysts in a recent earnings call that “Barbie is going to continue to be a brand that we spend a lot of time and attention on.” While the company is doubling-down on a flagging brand, it will soon lose the rights to a soaring one. Production of Disney Princess toys will shift to Hasbro in 2016, including for the hugely popular film, Frozen. Disney toys and Frozen helped offset some of Mattel’s pain from the Barbie slump. According to the National Retail Federation, Frozen merchandise is set to surpass Barbie as the number one gift for girls this holiday season.
Additionally, Mattel has to compete with a resurgent Lego, which serves as evidence that reviving an established brand is possible in the current toy market. The Danish toymaker’s revenues have soared in recent years. Lego reported 11% revenue growth in its most recent half year.
> Industry: Personal products
> Revenue (last 12 months): $9.2 billion
> 1-year share price change: -44.6%
Avon, which was founded in 1886, offered women the opportunity to earn money long before many workplaces considered hiring women.
Although the beauty products company has grown to a powerhouse, it has struggled in recent years. Avon replaced longtime CEO Andrea Jung with Johnson & Johnson’s Sherilyn McCoy in 2012. The board charged McCoy with reversing years of declining profits and reaching a conclusion to the government’s investigation into bribery allegations in China.
In December, nearly two and half years after McCoy was hired, the company agreed to resolve the bribery probe through settlements with both the Department of Justice and the Securities and Exchange Commission. While the company once viewed China as a potential billion dollar market, its recent experiences there have been disastrous. Chinese sales cratered last year, dropping by 42% year-over-year, yet the company continues to invest on advertising in the market to back product re-launches.
Perhaps worst of all, McCoy has been unable to restore the company to profitability. McCoy has been largely unable to stem a sales decline in the United States. North American revenues dropped 16% year-over-year in the third quarter, in large part due to a decrease in active independent Avon sales representatives. On a trailing 12-months basis, the company had a net loss of $123 million.
7. Owens Illinois
> Industry: Metal and glass containers
> Revenue (last 12 months): $6.9 billion
> 1-year share price change: -23.1%
Owens-Illinois (NYSE: OI) is a leader in glass packaging, including making bottles for beers, sodas, wines, and more. However, the company has been hit by hard times lately. O-I stands firmly in favor of glass packaging, but a lack of diversification is problematic since glass has lost market share to other types of packaging.
Other packing companies have succeeded even as O-I has floundered. As O-I’s earnings have fallen 24% in the last three years — on a trailing 12 month basis — metal packaging leader Ball Corporation’s earnings have increased by 32% in that time, helped by a focus on containing costs. Barclay’s noted in a recent downgrade that consumers no longer have strong preferences for glass bottles over cans — at least not enough to justify the additional price.
Company investors may want also to question why the company has not expanded into metal. Privately held Irish company Ardagh Packaging Holdings Limited demonstrates that that packaging companies can maintain operations in both metal and glass. Metal and glass each generated roughly half of the company’s 4 billion euro revenue last year.
O-I has done a consistently poor job of managing investor expectations. In October, Morningstar noted the company had a track record of setting overly optimistic forecasts that it fails to meet. The company lowered its guidance in October, leading to a selloff. In December, O-I again cut its 2015 outlook, prompting the Barclays downgrade. In a recent letter activist fund Atlantic Investment Management blamed management for inefficiently running the company, while calling CEO Albert Stroucken “quick to assign blame to macro factors when earnings miss the target.”
> Industry: Diversified metals and mining
> Revenue (last 12 months): $22.1 billion
> 1-year share price change: -26.6%
Freeport-McMoRan is a global mining company with copper, gold, molybdenum, and oil and gas operations. The company derives much of its operating profits from its North American copper business and from the Grasberg Minerals District in Indonesia, home to some of the world’s largest copper and gold reserves. Like other commodities players, Freeport has been hurt by the drops in copper, gold, and oil prices.
However, company investors have even more reasons to be upset. According to The Wall Street Journal, Freeport is closing in on a more-than $100 million lawsuit settlement related to the acquisitions of two companies in recent years. Shareholders alleged that Freeport’s acquisition of a company called McMoRan Exploration, in which many Freeport executives held a stake, amounted to a bailout. They also alleged that its buyout of Plains Exploration & Production, a minority owner of McMoRan Exploration, was intended to ensure the first deal went through.
Morningstar wrote in October that “the deals constituted a major use of shareholder capital in a manner we believe was inconsistent with shareholder expectations,” citing a 16% drop in stock price the day the deals were first announced.
In recent years, high pay packages for CEO Richard Adkerson have also been a source of criticism from investors. In the last five years, Freeport shares dropped by more than 44%, versus an 81% gain in the S&P 500.
By Alexander E.M. Hess and Douglas A. McIntyre