3 Stocks With a Negative Outlook

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The earnings season for specialty hardline retailers will kick off on Feb. 25. As already mentioned in one of my previous posts, the Street has a mixed outlook on this industry. Following is a brief discussion on three stocks with a pessimistic future outlook.

AutoZone (NYSE: AZO)

AutoZone is a specialty retailer of automotive replacement parts and accessories. The company offers an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products. Autozone operates in United States and Puerto Rico, and Mexico.

The Street expects a slight improvement in SSS to +1% for 4Q. The company is expected to report an EPS of $4.75. Peers recently spoke to improvement in sales in cold weather markets, most notably in commercial, which showed the sharpest incremental slowing for AutoZone in its November quarter. The investors are expected to look through a tough February quarter if signs of improvement emerge.

Best Buy (NYSE: BBY)

Best Buy retails consumer electronics, home office products, entertainment software, appliances and related services through its retail stores, as well as its web site. The company also retails pre-recorded home entertainment products through retail stores.

Flat holiday sales (announced in January) led to the first round of upward estimate revisions in almost a year. Despite better than expected sales trends, there is little visibility with respect to gross margin and EPS for the quarter. The Street will look for the company to clarify its new pricing strategy, the health of the international business, and the size of a potential cost cutting opportunity, and to introduce the new CFO during its earnings report/call.

The company is expected to report an EPS of $ 1.53 and 4Q revenue of $16.32 billion. The company will report on Feb 28.

Barnes & Noble (NYSE: BKS)

Barnes & Noble operates superstores and mall-based bookstores throughout the US. The company operates book superstores under the names Barnes & Noble Booksellers, Bookstop, and Bookstar.

B&N reported disappointing holiday sales results for November/December, driven by softness at Nook and Retail. The firm recently lowered guidance, reducing FY2013 Nook Media revenue guidance to less than $3 billion from approximately $3 billion; the Nook Media revenue estimate stands at $2.66 billion. B&N also now expects Nook segment EBITDA losses in FY2013 to be greater than in FY2012; the segment EBITDA is expected to be -$271 million (vs. FY2012 EBITDA of -$262 million). B&N appears to be losing share to Amazon in both the e-book and device markets. It would make sense for the company to contemplate changes to its cost structure associated with growing the digital businesses, although with outside parties - Microsoft and Pearson - invested in the Nook segment, the firm's ability to reduce investment is more complicated.

The company is expected to report an EPS of 54 cents and a quarterly revenue of $2.4 billion. The company will report on Feb. 28.

Foolish Bottom Line               

The bigger picture is that the Street doesn’t see the makings of a great year for retail as fiscal policy has shifted from a tailwind to a neutral to a headwind, interest rates do not have room to contribute more to stocks or spending, and margins are averaging long-run peak levels.

 

 


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