We upgrade our recommendation on
Staples Inc
(
SPLS
) to 'Neutral' from 'Underperform' with a target price of $12.00,
following its bottom line results during the recently concluded
quarter and the strategic initiatives taken by the company to
boost the financial results.
Staples posted third-quarter 2012 earnings of 46 cents a
share, beating the Zacks Consensus Estimate by a penny.
Management expects bottom line to increase in the low-single
digits for fiscal 2012.
Staples now focuses on improving store productivity by
generating incremental sales per store, accelerating growth in
adjacent categories, increasing market share in core office
supplies, reviving international operations, and streamlining its
cost structure. Through its cost-cutting endeavors, the company
intends to save approximately $250 million annually by the end of
fiscal 2015.
Being a leading retailer of office products and services,
Staples is better 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.
However, the quarter's downside was the 2% decline in total
sales to $6,353.1 million. Moreover, the reported revenue came
well below the Zacks Consensus Estimate of $6,461.0 million.
Management anticipates fiscal 2012 sales to remain at par with
the prior-year level.
Alongside, gross profit for the quarter decreased 3.8% year
over year to $1,751.9 million, while gross margin contracted by
approximately 50 basis points from the prior-year quarter to
27.6%. Operating profit decreased by approximately 5.5% to $500
million, whereas operating margin contracted 30 basis points to
7.9%.
Going forward, we remain cautious on the macroeconomic
environment and a sluggish job market, with small businesses and
consumers still remaining watchful on their spending.
Currently, shares of Staples hold a Zacks #2 Rank that
translates into a short-term "Buy" rating, and well defines the
slew of measures undertaken by the company to uplift itself.
OFFICE DEPOT (ODP): Free Stock Analysis
Report
OFFICEMAX INC (OMX): Free Stock Analysis
Report
STAPLES INC (SPLS): Free Stock Analysis
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