On Oct 3, 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. The company continues to disappoint on the sales and profitability front for the second consecutive quarter in the fiscal year, as decline in business and consumer spending in the wake of the global meltdown and the deterioration of credit markets have resulted in soft demand for big-ticket items.
Lower sales on account of store closures and lower product margins took a toll on the second quarter performance of Staples. The quarterly earnings of 16 cents a share missed the Zacks Consensus Estimate by a couple of cents and decreased 15.8% year over year. Total sales also declined 2.2% year over year to $5,314.7 million and fell short of the Zacks Consensus Estimate of $5,381 million.
Given the near-term challenges, the company lowered its earnings and sales guidance for fiscal 2013. Staples now expect earnings to be in the range of $1.21 to $1.25, down from its earlier guidance range of $1.30 to $1.35. Moreover, total revenue is expected to decline in the low single-digits compared with its earlier guidance of low single-digits increase in sales.
The lower-than-expected 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 fell 7.5% to $1.23 for fiscal 2013 and 7.7% to $1.31 per share for fiscal 2014 in the past 60 days.
Other Stocks That Warrant a Look
Not all retail stocks are performing as disappointingly as Staples. Other stocks worth considering in the retail sector, include Citi Trends, Inc. (CTRN), DSW Inc. (DSW) and Lumber Liquidators Holdings, Inc. (LL), all sporting a Zacks Rank #1 (Strong Buy).