Will Q2 Earnings Hold A Surprise For Staples' (SPLS) Stock?

Staples, Inc. (NASDAQ:SPLS) is scheduled to report second-quarter fiscal 2016 results on Aug 17, 2016. In the previous quarter, the company reported a positive earnings surprise of 6.3%. Notably, in two out of the last four quarters, the company’s earnings came in line with the Zacks Consensus Estimate. Let’s see how things are shaping up for this announcement.

Zacks Model Shows Unlikely Earnings Beat

Our proven model does not conclusively show that Staples is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Staples has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at 12 cents. Staples carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

Factors Influencing This Quarter

Following the verdict on the merger, Staples has outlined certain plans to increase long-term value. The company is increasing its offering of products as well as services beyond office supplies in order to acquire new customers. Staples expects to improve its supply-chain capabilities through the addition of more than 1,000 associates to its mid-market sales team.

On the other hand, the challenges across the office supplies sector and unfavorable currency fluctuations remain concerns for Staples. The company’s cost cutting and other initiatives hold promise for the long run but not for the short term, as reflected by management’s cautious stance. For the fiscal second quarter, it anticipates sales to fall from the prior-year quarter level. Adjusted earnings per share is projected in the range of 11 cents–13 cents.

Sluggish international sales continue to concern Staples. International sales had dropped 18.9%, 17.2%, 16.8% and 12%, during the first, second, third and fourth quarters of fiscal 2015, respectively. During first-quarter fiscal 2016, revenues from international operations declined 5.6%, reflecting lower comps in Europe. International sales were soft owing to a weak macroeconomic environment, particularly in Europe. Though European restructuring is on track, currency headwinds might prove to be a drag.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Hibbett Sports, Inc. (NASDAQ:HIBB) has an Earnings ESP of +7.14% and a Zacks Rank #2.

Lowe's Companies, Inc. (NYSE:LOW) has an Earnings ESP of +2.13% and a Zacks Rank #2.

Best Buy Co., Inc. (NYSE:BBY) has an Earnings ESP of +7.14% and a Zacks Rank #2.