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On Dec 12, 2013, Zacks Investment Research downgraded Central Garden & Pet Company (CENT - Analyst Report) to a Zacks Rank #5 (Strong Sell). Shares of this company fell 36.6% year to date.

Why the Downgrade?

Central Garden is witnessing downward estimate revisions after reporting dismal fourth-quarter and fiscal 2013 results. Moreover, the company has delivered negative earnings surprises in the last 4 quarters with an average miss of 23.9%.

Central Garden reported disappointing fourth-quarter and full-year results on Dec 10. The company’s fourth-quarter fiscal 2013 adjusted loss of 31 cents per share was wider than the Zacks Consensus Estimate of loss of 23 cents and loss of 21 cents reported in the year-ago quarter. For fiscal 2013, Central Garden reported adjusted loss per share of 11 cents versus earnings of 44 cents in the prior-year quarter.  

Central Garden’s top line decreased 7.1% year over year to $368.8 million in the fourth quarter and missed the Zacks Consensus Estimate of $396 million. For fiscal 2013, the top line fell 2.7% from the last year to $1,653.6 million. Dismal performance of the Garden segment led to a 22.6% decline in consolidated gross profit to $81.3 million.

Lower gross profit led to substantial increase in operating loss, which came in at $26.4 million in the fourth quarter, wider than the operating loss of $8.5 million reported in the prior-year quarter. Further, the Zacks Consensus Estimate for fiscal 2014 fell 12.3% to 50 cents over the last 7 days.

A sluggish discretionary spending environment remains a concern for the company since a significant portion of its product portfolio comprises premium offerings. Though the company has cost containment and margin improving initiatives in place, it will take sometime for the company to return to profitability.

Other Stocks to Consider

Not all retail stocks are performing as disappointingly as Central Garden. Some better-ranked retail stocks that look promising include Conns Inc. (CONN - Snapshot Report), Nutrisystem, Inc. (NTRI - Snapshot Report) and Jarden Corp. (JAH - Snapshot Report). While Conns carries a Zacks Rank #1 (Strong Buy), Nutrisystem and Jarden have a Zacks Rank #2 (Buy).

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