On Jun 19, we upgraded leading office product retailer,
) to Neutral based on its improved prospects. The company also
currently carries a Zacks Rank #3 (Hold).
Why the Upgrade?
Being a leading retailer of office products and services,
Staples remains well positioned to benefit from the sector
consolidation that would help it capture incremental market share
through rational pricing. The company is poised to generate
growth by enhancing its online features, expanding offerings and
streamlining its cost structure.
The company shifted focus on improving store productivity,
accelerating growth in adjacent categories and increasing market
share in core office supplies. Alongside, the company is focusing
on the delivery business, which requires less capital and
generates higher margins. These factors could prove to be a game
changer for the company in the long run.
Staples now contemplates closing underperforming locations and
downsizing stores. As part of its strategy to optimize real
estate portfolio, the company intends to shrink its store square
footage by about 15% in North America by the end of fiscal year
2015. Going forward, the company expects to close 40 stores,
while downsizing another 45 stores during fiscal 2013. We believe
that Staples' aggressive restructuring strategies will enhance
store productivity and drive profitability in the coming
However, the company continues to disappoint on the sales
front as decline in business and consumer spending in the wake of
the global meltdown and the deterioration of credit markets have
resulted in sluggish demand for big-ticket items. During the last
reported quarter, sales decreased 3% year over year to $5,814.6
million and missed the Zacks Consensus Estimate of $5,951
million. Going forward, we expect demand for office products to
remain soft. Moreover, margins are likely to remain under
pressure owing to the company's price investment and
Other Stocks to Consider
Until any further upgrade in Staples' Zacks Rank, other well
performing stocks in the retail, wholesale sector include
Big 5 Sporting Goods Corp
), which carries a Zacks Rank #1 (Strong Buy).
The Gap, Inc
), carrying a Zacks Rank #2 (Buy) are also worth considering.
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STAPLES INC (SPLS): Free Stock Analysis
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