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Staples Down to Strong Sell

Zacks Equity Research

On Mar 11, 2014, Zacks Investment Research downgraded Staples, Inc. (SPLS) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Staples has witnessed sharp downward estimate revisions over the last 7 days. The primary reason behind this was the company’s lackluster fourth-quarter fiscal 2013 performance. Notably, over the past few quarters, this office supplier retailer has continuously posted disappointing results. The company missed the Zacks Consensus Estimate in the trailing four quarters by an average of 8.2%.   

Lower sales due to store closures and stiff competition from online retailers weighed on Staples’ performance. Fueling further concern, the company announced the closure of 225 stores across North America through 2015.

On Mar 6, Staples posted fourth-quarter fiscal 2013 earnings per share of 33 cents, which was below the Zacks Consensus Estimate of earnings of 39 cents and down 28.3% year over year. Total sales decreased 10.6% year over year to $5,873.0 million and fell short of the Zacks Consensus Estimate of $5,973 million.  

Given the near-term challenges, the company expects lower sales for the first quarter of fiscal 2014 as compared with the prior-year quarter. Staples expects earnings per share in the range of 17–22 cents.

To boost its performance, Staples declared that it would initiate a cost reduction program to achieve pre-tax cost savings of about $500 million annually by 2015.

Owing to the headwinds with which the company is grappling at present, analysts remain highly apprehensive, as evident from the downward estimate revisions. Over the last 7 days, the Zacks Consensus Estimate fell 8.4% to $1.20 per share for fiscal 2014 while for fiscal 2015, it declined 11.4% to $1.17 per share.

Other Stocks to Consider

Not all retail stocks are performing as poorly as Staples. Some better-ranked stocks include Barnes & Noble, Inc. (BKS), ITOCHU Corp. (ITOCY) and Kingfisher plc (KGFHY). While Barnes & Noble and ITOCHU Corporation sport a Zacks Rank #1 (Strong Buy), Kingfisher has a Zacks Rank #2 (Buy).

Read the Full Research Report on SPLS
Read the Full Research Report on BKS
Read the Full Research Report on ITOCY
Read the Full Research Report on KGFHY

Zacks Investment Research