Staples, Inc. ( SPLS ) is set to report its second-quarter fiscal 2014 results on Aug 20, 2014. Last quarter, it posted negative earnings surprise of 14.3%. Let us see how things are developing for this announcement.
Factors Affecting this Quarter
Staples' ongoing investment strategies along with the structural challenges presented by the office supplies sector are likely to run down the benefit from cost cutting initiatives. Rising competition from online giants is adding to the woes. This was well reflected in the first quarter of fiscal 2014 management commentary. Management is expecting lower sales for the second quarter of fiscal 2014 compared with the prior-year quarter figure. Also, earnings per share are expected to be in the range of 9-14 cents as against 16 cents per share earned in the year-ago quarter. We also believe that given the near-term challenges, margins will continue to be under pressure.
Our proven model does not conclusively project Staples as likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here as you will see below.
Zacks ESP: ESP for Staples is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 12 cents.
Zacks Rank: Staples carries a Zacks Rank #3 (Hold) which increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings surprise call. We caution against stocks with a Zacks Rank #4 and #5 (Sell-rated stocks) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows these to have the right combination of elements to post an earnings beat:
Abercrombie & Fitch Co. ( ANF ) has an Earnings ESP of +20.00% and a Zacks Rank #2 (Buy).
Zoe's Kitchen, Inc. ( ZOES ) has an Earnings ESP of +50.00% and a Zacks Rank #2.
Dollar Tree, Inc. ( DLTR ) has an Earnings ESP of +7.69% and a Zacks Rank #3.