On Sep 17, 2013, Zacks Investment Research downgraded Staples, Inc. (SPLS) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Estimates for Staples have shown a downtrend since the company reported disappointing second-quarter fiscal 2013 results on Aug 21, 2013.
Staples continues to disappoint on the sales and profitability front as decline in business and consumer spending in the wake of the global meltdown and the deterioration of credit markets have resulted in sluggish demand for big-ticket items.
Lower sales on account of store closures and fall in product margins took a toll on the company’s performance. The quarterly earnings of 16 cents a share from continuing operations missed the Zacks Consensus Estimate and decreased 15.8% year over year. Total sales decreased 2.2% to $5,314.7 million and fell short of the Zacks Consensus Estimate of $5,381 million.
The company’s international operations remain a drag in the quarter with sales waning 8.3% to $946 million, reflecting lower revenue from Europe and Australia.
Going forward, we expect demand for office products to remain soft. Moreover, margins are likely to remain under pressure owing to the company’s price investment and macroeconomic headwinds.
Given the near-term challenges, the company lowered its earnings and sales guidance for fiscal 2013. Staples now envisions earnings to be in the range of $1.21-$1.25, down from its earlier guidance range of $1.30 – $1.35. Moreover, total revenue is expected to decline in the low single-digits compared with its previous projection of low single-digits increase in sales.
The dismal results triggered a downtrend in the Zacks Consensus Estimates, as analysts become less constructive on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that dipped 7.5% to $1.23 for fiscal 2013 and 7.7% to $1.31 per share for fiscal 2014 in the past 30 days.
Other Stocks that Warrant a Look
Not all retail stocks are performing as disappointingly as Staples. Other stocks worth considering include Fortune Brands Home & Security, Inc. (FBHS) carrying a Zacks Rank #1 (Strong Buy), and Dollar General Corporation (DG) and Ross Stores Inc. (ROST) both sporting a Zacks Rank #2 (Buy).