On Apr 4, we downgraded our recommendation on office supply
), to Underperform, foreseeing concerns regarding the future
outlook of the stock amid a sluggish macro-economic backdrop and
frugal consumer spending.
Why the Downgrade?
Estimates for Staples have been displaying a downtrend ever
since the company reported its fourth quarter fiscal 2012 results
on Mar 6. Though the company's fourth-quarter earnings of 46
cents a share beat the Zacks Consensus Estimate by a penny, its
sales fell short of the Estimate. Moreover, excluding the impact
of an additional week, sales waned 4.2%, reflecting a 3.9%
decline in International sales. Comparable-store sales declined
5% on account of flat average order size and a 5% decrease in
In the last 30 days, the Zacks Consensus Estimate for fiscal
2013 and 2014 decreased by 7.6% and 4.1% to $1.34 and $1.42,
respectively. With the Zacks Consensus Estimate for both 2013 and
2014 going down, the company now has a Zacks Rank #4 (Sell).
Cause for Concern
The office supply retailers are going through a rough patch as
decline in business and consumer spending in the wake of the
global meltdown has resulted in sluggish demand for big-ticket
items such as business machines, furniture and other durable
Moreover, increased competition from online rivals is taking a
toll on their profitability. Amid such a scenario, the company's
Office Depot Inc
) decided to merge their businesses.
Going forward, secular headwinds and dismal international
sales are likely to remain near-term deterrents for the stock.
Specialty Retail Stock that Warrants a Look
While we prefer to avoid Staples until we see signs of
improvement in the company's performance, the other specialty
retailer worth a look is
) holding a Zacks Rank #1 (Strong Buy).
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