) has been grappling with lingering economic woes and soft job
market that have been impeding its growth. Consequently, this
leading retailer of office products and services came up with slew
of measures, which it believes will prove to be a game changer.
In a move to uplift itself, Staples now tends to focus on
improving store productivity, accelerating growth in adjacent
categories, reviving international operations, and streamlining
cost structure. Through its cost-cutting endeavors, the company
intends to save approximately $250 million annually by the end of
With the economy still struggling to find its way out of the
woods, consumers and small businesses remain apprehensive about
big-ticket spending such as business machines and other durables.
Thus, the demand for office products is likely to remain slothful
as the performance of this sector is correlated to the economy's
Accordingly Staples is now concentrating more on product
categories adjacent to core office supplies, such as facilities and
breakroom supplies, copy and print, mobile phones and accessories,
and new technology products like tablets and eReaders.
Further, with increasing consumers' inclination toward online
shopping, the companies are contemplating to enhance their
e-commerce activities. Staples also felt the need of coalescing
U.S. Retail and Staples.com businesses to better serve the changing
preferences of consumers, as well as augmenting investment in
online and mobile competences.
Given the unstable environment, we appreciate Staples' rational
approach to close underperforming locations and downsize stores. As
a part of its strategy to optimize real estate portfolio, Staples
hinted to shrink its store square footage by about 15% in North
America, involving closure of 15 U.S. outlets, by the end of fiscal
year 2015. The company plans to close 30 stores and said that 30
more are under scanner to undergo relocation or downsizing.
With the European debt crisis yet to be fixed, Staples has a
dull picture to portray as it suffered a 9% decline in its
comparable-store sales in the region in the last reported quarter.
In order to revamp its beleaguered European operations, Staples
plans to close 45 outlets and cease delivery businesses by the end
of the current fiscal year.
The company also announced that John Wilson will now spearhead
the European operations, in place of Rob Vale, who is retiring. As
a part of its restructuring plan, Staples plans to divest European
Printing Systems unit and refurbish its Australian operations.
These restructuring actions also relate to the muted
second-quarter 2012 performance. Staples posted earnings of 18
cents a share that missed the Zacks Consensus Estimate of 22 cents
and decreased 18% from the prior-year quarter due to
lower-than-expected sales trends in North America and continuing
softness in Europe and Australia.
The company witnessed a sharp fall in computer sales and
sluggish trends in core categories. Total sales of $5,498.5 million
declined 6% year over year, and also fell short of the Zacks
Consensus Estimate of $5,721 million.
Given the disappointing results, management lowered its guidance
and now expects sales for fiscal 2012 to remain flat compared with
the prior year, while the bottom line is expected to increase in
low single digits. Earlier, Staples had guided sales to increase in
the low single digits and earnings per share to rise in the high
single digits in fiscal 2012.
However, Staples did not forget its commitment toward
stakeholders and is returning much of its free cash to them. The
company also maintains credit ratios that are necessary for an
investment-grade rating. Staples' buyback plan includes shares
worth $450 million and expects to reimburse Senior Notes of $325
million due October 2012. The company expects to return over $1
billion to shareholders during fiscal 2012.
Currently, we prefer to be on the sidelines until the efforts
taken to combat the uneven economic recovery result in top and
bottom lines' growth. Consequently, we maintain our Neutral
recommendation on the stock. However, Staples, which competes with
Office Depot Inc.
), holds Zacks #4 Rank that translates into a short-term Sell
rating, and well defines the current scenario with which the
company is contending.
OFFICE DEPOT (ODP): Free Stock Analysis Report
OFFICEMAX INC (OMX): Free Stock Analysis Report
STAPLES INC (SPLS): Free Stock Analysis Report
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