I know how you feel. Last year the gym I work at had girls at all levels that did not have the skills needed to compete. They were scoring anywhere from 26-29's for the beginning of the season. This year we were able to hold some back and should start off the season at 33-34.
The best thing would be to tell the kids that this is a learning experience year. If they get down on theirselves, show them to little improvements from meet to meet. Its not an easy situation. And as a coach its extremly frustrating. Is it possible to move them down a level, until they get the skills they need? If not, just keep their spirits up and tell them that wait until they see the difference next year in scores.
Once the season is over, and you are considering where to place them next year. Look at where they can score well, not where they want to be. We held back about 6 level 4's to level 5 this past year since they were still missing skills and although the girls and parents at first weren't happy they understood that we want them to start off in the middle of the pack at meets, not at the bottom as they did the year before.
It all works out in the end.