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On Aug 31, Zacks Investment Research downgraded retailer The Bon-Ton Stores Inc. (BONT) to a Zacks Rank #5 (Strong Sell) on lower-than-expected second-quarter 2013 results as well as trimmed guidance.

Why the Downgrade?

The Bon-Ton Stores, which reported its second-quarter 2013 earnings on Aug 22, failed to exceed the Zacks Consensus Estimate on both the top and bottom lines. The company’s loss per share was 4 cents, wider than the Zacks Consensus Estimate.

On the sales front, the performance was more disappointing. Net sales, which declined 6.3% year over year, fell shy of the Zacks Consensus Estimate by 8.1%. Underperformance in comps was held responsible for this lackluster result. Notably, the departmental store chain missed sales estimate in the preceding quarter as well.

The company has been witnessing a slowdown in comps since the last two quarters due to sluggish traffic trend. After registering just 1% and 1.2% growth in comps in the last two quarters, comps plunged 6.4% in the second quarter. Management now expects its comps to remain negative 2.5% to flat for the full year.

As per management, most of its operating markets are lagging national traffic trends, which is why Bon-Ton now plans to fine tune its core promotional events with an aim to attract traffic. While the company has been able to post expansion in gross margin in the recent time due to lower costs of merchandise sold, we believe, it might become difficult for it to weather out the effects of soft sales through cost savings, going forward.

On the guidance front as well, the company does not inspire optimism as it reduced its expectation almost on every account. Management now expects its adjusted earnings before interests, taxes, depreciation and amortization (EBITDA) to remain in the range of $170 million to $190 million (down from $180 million to $200 million), earnings per share to come within the range of 15 cents—75 cents (down from 40 cents—$1.00) and cash flow in the range of $10 million—$30 million (down from $20 million—$40 million).

Other Stocks to Consider

Other players in the retail industry, which look attractive at current levels, include Haverty Furniture Cos. Inc. (HVT - Snapshot Report) and hhgregg, Inc. (HGG - Analyst Report) and Green Mountain Coffee Roasters Inc. (GMCR - Analyst Report). While Haverty and hhgregg carry a Zacks Rank #1 (Strong Buy), Green Mountain has a Zacks Rank #2 (Buy).

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