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Will Office Depot (ODP) Pull a Surprise in Q2 Earnings?

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Office Depot, Inc. ODP, which supplies a wide range of office products and services, is scheduled to report second-quarter 2016 results on Aug 3, before the opening bell. Last quarter, the company missed the Zacks Consensus Estimate by 23.1%. Notably, the company lagged the Zacks Consensus Estimate in the trailing three quarters, with an average miss of 16.3%. Let’s see how things are shaping up for this announcement.

Zacks Model Shows Unlikely Beat

Our proven model does not conclusively show that Office Depot 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. Office Depot has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at 6 cents. The stock holds a Zacks Rank #3, but an ESP of 0.00% makes a surprise prediction difficult.

OFFICE DEPOT Price and EPS Surprise

OFFICE DEPOT Price and EPS Surprise | OFFICE DEPOT Quote

Factors at Play

Management expects headwinds across product lines and distribution channels. Also, the company’s planned store closures and a strengthening U.S. dollar may hamper sales. As a result, management continues to project year-over-year decline in total sales in 2016. Demand for office products (paper-based) has been decreasing due to technological advancements.

Smartphones, tablets and laptops are fast emerging as viable substitutes for paper-based office supplies. Moreover, there has been a persistent weakness in the office products sector due to decline in business and consumer spending. The company’s revenues have missed the Zacks Consensus Estimate in the trailing six quarters.

On the positive side, the company has been improving in-store shopping experience, increasing investment in Copy & Print Depot and Tech Depot services, remodeling stores and introducing smaller format stores.

Stocks That Warrant a Look

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

Nordstrom Inc. (JWN - Free Report) has an Earnings ESP of +1.82% and a Zacks Rank #2 (Buy).

Jack in the Box Inc. JACK has an Earnings ESP of +1.15% and a Zacks Rank #2.

Macy's, Inc. M has an Earnings ESP of +31.71% and a Zacks Rank #2.

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