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Why Staples, Dot Hill, and Cross Country Healthcare Tumbled Today

By Dan Caplinger – Mar 6, 2014 at 8:31PM

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Even though the broader market managed to set another record high today amid signs of continuing improvement in the U.S. economy, these three stocks dropped substantially. Find out why these stocks missed out on the market rally.

Thursday brought more good news for bullish investors in the overall U.S. stock market, as major-market benchmarks mostly posted modest gains as the good mood on Wall Street continued to push most stocks higher. Yet, even with the direction of the broader market remaining up, many stocks didn't manage to share that positive mood, and Staples (SPLS), Dot Hill (NASDAQ: HILL), and Cross Country Healthcare (CCRN -2.28%) were among those stocks that lost the most ground today, with earnings being the culprit for all three.

Staples saw its shares fall 15% as the office-products retailer posted extremely troubling fourth-quarter earnings results. Same-store sales dropped by 7%, leading to a 4% drop in overall revenue even after adjusting for last year's 53-week fiscal year, and sending adjusted earnings per share down by 28%. Pressure on operating margins contributed to the company's decision to close 225 stores, as more of Staples' business moves away from its bricks-and-mortar operations and more toward its e-commerce offerings. The good news is that Staples already has an impressive presence online, with about half its revenue coming from the e-commerce side of its business. As a result, it doesn't have to worry nearly as much about rivals poaching its business, like so many big-box retail stores have seen in recent years.

Dot Hill dropped 14% after the data-storage device maker's fourth-quarter report. On its face, the company's results looked reasonably positive, with adjusted revenue climbing 29% on particularly strong performance from its Vertical Markets segment. Moreover, for the full 2013 year, Dot Hill posted its first GAAP profit since 2005. But gross margins fell by more than a percentage point sequentially compared to the company's third quarter, and Dot Hill's guidance for the coming year include a range of earnings that tended toward the lower end of what investors had expected from the company. As the storage-systems business gets increasingly competitive, Dot Hill will have to work hard to keep its margins up as larger competitors pose a bigger threat to its business.

Cross Country Healthcare plunged 22%, as the medical-staffing company projected that it wouldn't be nearly as profitable as investors had hoped. Even after adjusting its fourth-quarter loss to remove one-time charges, the company still lost money during the quarter, falling short of the small profit that analysts had expected. Sales also fell short of expectations, and in its first-quarter guidance, Cross Country Healthcare said that even though revenue would be relatively strong, adjusted profit margins before interest, tax, depreciation, and amortization would be just 1% to 2%. For an industry that has demographic tailwinds that should be helping companies like Cross Country, the news was discouraging to shareholders hoping for better future performance.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of Staples. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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