On Monday, Newell Rubbermaid (NASDAQ:NWL) was downgraded by Raymond James from Outperform to Market Perform. The shift in rating reflects concerns over the company's recent performance and outlook, as it faces increasing operating expenses and declining sales in consumer discretionary categories.
The company, known for its household and commercial products, has experienced multiple guidance cuts, a trend that has raised caution among analysts. Despite initial surges in demand during the COVID-19 lockdowns and subsequent positive pricing, Newell Rubbermaid has seen a downturn in the sales of kitchen and home goods. The closure of Bed Bath & Beyond (OTC:BBBYQ) (BBBY) has also impacted the company, with a greater effect on inventory sell-in than sell-out.
While Newell Rubbermaid has shown some positive signs, such as a return to innovation and new category management, these are overshadowed by broader economic challenges. Consumers are increasingly prioritizing services over goods, and a pull-forward of the replacement cycle in small appliances is expected to dampen demand in the near term.
The company's optimization efforts have improved gross margin significantly, with a reported increase of 570 basis points year-over-year in the fourth quarter. However, operating expenses have continued to rise both sequentially and year-over-year, leading to a decrease in operating margin by 310 basis points for the fiscal year 2023.
The analyst expressed a lack of confidence in the company's ability to navigate through another challenging year in 2024 without further outlook cuts. As a result, the recommendation is to adopt a more cautious stance on Newell Rubbermaid's stock until there is greater clarity and stability in its financial performance.
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