In a strategic move to reduce interest expenses, Staples
Inc . ( SPLS ) announced the simultaneous offering and
redemption of debt. The company announced the offering in two parts
of $500 million each, priced at 2.75% due January 12, 2018 and
4.375% due January 12, 2023, respectively.
The company expects to close the offering on January 14, 2013
and receive net proceeds of $993.8 million after underwriting
discount. Subsequently, the company announced a tender offer to
repurchase its $750 million outstanding 9.750% debt due 2014 from
the proceeds of the new issuance.
Looking at the interest expenses, the company incurred interest
expense of $40.3 million during the third quarter of fiscal 2012,
while interest expense came in at $124.2 million for the 39 weeks
period ended October 27, 2012.
For Staples, the move is a perfect fit as borrowing costs have
gone down despite the significant disruption in the global credit
markets. In fact, many other companies are taking a similar step to
exchange their higher-interest debt for lower-interest debt.
The move is a part of the company's strategic initiative to
streamline its cost structure. Staples intends to save
approximately $250 million annually by the end of fiscal 2015.
Moreover, Staples remains focused on improving store productivity
by generating incremental sales per store, accelerating growth in
adjacent categories, increasing market share in core office
supplies and reviving international operations.
Being a leading retailer of office products and services,
Staples remain well positioned than its competitors,
OfficeMax Inc . ( OMX )
and Office Depot Inc . ( ODP ),
to sustain its growth based on effective merchandising, increasing
customer awareness, enhanced online features, expanded assortments
and store refurbishing program. The company is gradually lowering
its exposure to less profitable ventures and eyeing opportunities
with lucrative growth prospects to augment profitability.
Currently, shares of Staples hold a Zacks #2 Rank that
translates into a short-term "Buy" rating, and well defines the
measures undertaken by the company to uplift itself.
However, we maintain our long-term ''Neutral'' rating on the
stock as we remain cautious on the macroeconomic environment and a
sluggish job market, with small businesses and consumers still
remaining watchful on their spending.OFFICE DEPOT (ODP): Free Stock Analysis ReportOFFICEMAX INC (OMX): Free Stock Analysis ReportSTAPLES INC (SPLS): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment