Q3 Preview: Staples (SPLS) Hopes to Tighten Margins Amid Renewed International Expansion Plans (OMX, ODP, AMZN)


Staples, Inc. ( SPLS ) is higher ahead of the company's third quarter earnings release, expected out before the market opens tomorrow. The stock is up0.17% in afternoon trading.

The company is expected to report an EPS of $0.40 on revs of $6.54 billion. Last quarter, the Framingham, MA-based retailer reported an EPS of $0.20 on $5.53 billion in revs, compared to consensus EPS of $0.20 and revs of $5.64 billion. Last year, in Q309, the Staples posted an EPS of $0.39 and revs of $6.50 billion, besting views looking for an EPS of $0.38 on $6.45 billion in revs.

Shares of SPLS gained about 7% through the quarter, to $20.52 at the end of October. The stock is down 2.5% since then end of the quarter, and about 17% off since the start of 2010.

SPLS is trading for a forward P/E of 12.9x next year's earnings, compared to 56.38x for Office Depot ( ODP ) and 15.8x for OfficeMax ( OMX ).

Data from Bloomberg shows that 15 analysts have a Buy rating on the shares, 6 have a Hold, and one recommends to Sell the stock. The analysts price target average is $24.50, with a high of $29 and a low of $17.

Staples reported their Q310 earnings a bit early, on October 25. They gave an EPS range of $0.39 - $0.41, compared to the consensus of $0.41 at the time. They also reaffirmed their FY10 outlook, and guided FY11 EPS of $1.50 - $1.60, versus the consensus of $1.57. Same-store sales are expected to be down 1%.

In September, Goldman Sachs upgraded Staples from Neutral to Buy, adding them to their Conviction Buy List. GS boosted their price target from $22 to $23.

Deutsche Bank is expecting an EPS of $0.40. DB looks at four indicators in the office space: employment, industrial production, small business optimism and computer spending. Deutsche notes that, generally, all four of the indicators have increased through the quarter compared to Q309. Professional and Business Services employment data series were up 2% in Q310, gaining on a 0.7% jump in Q210. Small business optimism dropped to 88.6 in the quarter. Industrial production improved 6.3%, and computer spending has mixed indications (data not available yet).

Janney also expects an EPS of $0.40. They were looking for sales growth of 1.9%, but SPLS came in flat. They think that weakness in sales will be offset by improved margins. Janney is modeling a gross margin of 9.4% for North America delivery, 10.5% for N.A. Retail, and 4.3% for International. They maintain their neutral, with concerns that "renewed international growth aspirations could drive lower returns in the future."

Additinally, look for comments about their partnership with Pragmatic Express Ltd., Amazon (Nasdaq: AMZN) Kindle sales, cost management, and store expansions.

Staples, Inc. is expected to release their Q310 earnings on Thursday, November 18, 2010, at approximately 7:00am EST. Stay tuned to StreetInsider.com's EPS Central section to see our analysis of the highly-anticipated quarterly results within seconds of their release.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: AMZN , ODP , OMX , SPLS



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