We downgraded our long-term recommendation on
) to Underperform as it continues with its dismal performance for
the second consecutive quarter in fiscal 2013. The stock
currently carries a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Estimates for Staples have shown a downtrend since the company
reported disappointing second-quarter results on Aug 21, 2013.
The company 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 soft demand for big-ticket
Lower sales on account of store closures and lower product
margins took a toll on the company's performance. The quarterly
earnings of 16 cents a share missed the Zacks Consensus Estimate
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.
The company's international operations remain a concern in the
quarter with sales waning 8.3% to $946 million, reflecting lower
revenue from Europe and Australia.
Going forward, we expect the demand for office products to
remain soft. Moreover, margins are likely to remain under
pressure owing to the company's price investment and
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,
Citi Trends, Inc.
Lumber Liquidators Holdings, Inc.
) both sporting a Zacks Rank #1 (Strong Buy), and
) holding a Zacks Rank #2 (Buy).
CITI TRENDS INC (CTRN): Free Stock Analysis
DSW INC CL-A (DSW): Free Stock Analysis
STAPLES INC (SPLS): Free Stock Analysis
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