Office Depot is Now Strong Sell - Analyst Blog

On Mar 18, 2014, Zacks Investment Research downgraded Office Depot, Inc. ODP to a Zacks Rank #5 (Strong Sell). The shares of this office supplies retailer have tumbled 14.4% year-to-date.

Why the Downgrade?

Estimates for Office Depot have been showing a downtrend since the company posted disappointing fourth-quarter 2013 results on Feb 25, 2014. Over the past few quarters the company has been struggling to regain its momentum.

The soft industry trends and severe competition from online giants resulted in declining sales at Office Depot. The company recently merged with OfficeMax to capture incremental market share, streamline cost structure and compete better with industry peers.

Looking at the company's performance in the trailing four quarters, it has missed the Zacks Consensus Estimate by an average of 122.2%. In the most recent quarter, earnings fell short of the estimate by 200%.

Office Depot posted adjusted fourth-quarter 2013 loss per share of 3 cents as against the Zacks Consensus Estimate of earnings of 3 cents and break-even results in the prior-year quarter. Revenues of $3,486 million also fell short of the Zacks Consensus Estimate but grew 33% year over year.

Further, management foresees headwinds across product lines and distribution channels during 2014. As a result, the company projects total revenue to be lower than 2013 pro-forma combined sales.

Given the uncertainties, analysts have become less constructive on the stock's future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that tumbled 56% to 11 cents for fiscal 2014 and 40% to 33 cents a share for fiscal 2015 in the past 30 days.

Other Stocks to Consider

Not all retail stocks are performing as disappointingly as Office Depot. Some better-ranked stocks include Barnes & Noble, Inc. BKS carrying a Zacks Rank #1 (Strong Buy), while ITOCHU Corp. (ITOCY) and Kingfisher plc (KGFHY) hold a Zacks Rank #2 (Buy).