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Fade the post-earnings rally in shares of struggling electronics retailer Greatest Purchase, Citi says.
“Close to-term Greatest Purchase’s same-store gross sales are nonetheless a number of the worst in retail with vacation quantity a major unknown,” Citi analyst Steven Zaccone wrote in a be aware to purchasers following the corporate’s earnings report on Tuesday morning.
Greatest Purchase inventory popped 12% as the corporate’s earnings truly beat most Wall Avenue estimates. The corporate additionally managed to work its stock down by 14% yr over yr, sparking hope of a lower than anticipated promotional vacation quarter.
Regardless of clearing a low bar, the retailer had a dreadful third quarter as customers pulled again on discretionary purchases and deflationary forces zapped shopper electronics. Similar-store gross sales fell in virtually all strains of the enterprise. Revenue margins tanked in each Greatest Purchase’s home and worldwide segments.
U.S. and worldwide same-store gross sales fell 10.5% and 9.3%, respectively within the third quarter.
Right here is how Greatest Purchase carried out in comparison with Wall Avenue estimates:
Enterprise Similar-Retailer Gross sales: -10.4% vs. -13.1%
Worldwide Similar-Retailer Gross sales: -9.3% vs. -7.6%
U.S. Similar-Retailer Gross sales: -10.5% vs. -13.4%
Gross Margin: 22% vs.22.2%
Adjusted EPS: $1.38 vs. $1.05
Zaccone, who reiterated a Promote score on Greatest Purchase’s inventory, thinks there stays under-appreciated danger as shopper spending stays cautious in 2023.
“Seeking to subsequent yr, we nonetheless battle with the EBIT [earnings before interest and taxes] margin trajectory because the top-line faces incremental stress from a slowing shopper spending atmosphere,” he wrote.
The analyst thinks buyers ought to keep targeted on Greatest Purchase’s blended fundamentals, and ignore what appears to be like to be a one-day brief squeeze within the inventory. These fundamentals embrace Greatest Purchase administration saying on the earnings name that same-store gross sales are down 15% by means of November largely on weakening buyer transactions.
“We anticipate Greatest Purchase shares to see energy primarily based on 3Q same-store gross sales and EPS beat in addition to the slight steering increase. We be aware Greatest Purchase was one of many extra shorted shares in our protection coming into earnings so it’s not shocking to see the squeeze rally on barely higher than feared outcomes,” Zaccone stated.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Comply with Sozzi on Twitter @BrianSozzi and on LinkedIn.
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