On Jun 6, 2014, we issued an updated research report on
) following the company's first quarter fiscal 2014 earnings
Staples' adjusted earnings of 18 cents per share came short of the
Zacks Consensus Estimate of 21 cents per share and decreased 31.0%
year over year. Total sales decreased 2.8% year over year to
$5,654.0 million and fell short of the Zacks Consensus Estimate of
$5,626.0 million. Lower sales due to store closures and unfavorable
foreign currency fluctuations weighed on the company's performance.
Moreover, management gave a cautious commentary. The company
expects lower sales for the second quarter of fiscal 2014 compared
with the prior-year quarter figure. Also, earnings per share are
expected to be in the range of 9-14 cents per share as against 16
cents per share earned in the year-ago quarter.
The tepid outlook triggered a downward revision in the Zacks
Consensus Estimate for fiscal 2014 and 2015 that fell 8.3% and
8.4%, respectively, in the past 30 days.
In addition, secular headwinds loom large over the office supplies
industry and stiff competition from online giants like
) remains a cause of concern.
However, to bail itself out, Staples has resorted to vigorous cost
cutting initiatives. Recently the company launched a cost reduction
program to achieve pre-tax cost savings of about $500 million
annually by fiscal 2015 with majority of savings expected to come
from retail store closures, supply chain, labor optimization and
customer service. The company achieved annualized cost reduction of
$100 million in the first quarter of fiscal 2014 and expects $250
million in reductions for 2014.
Also, Staples is closing its underperforming locations and
downsizing stores to rationalize its business. Last quarter, the
company announced plans to close nearly 225 stores across North
America by 2015. In the first quarter of fiscal 2014, the company
closed 16 stores and downsized/relocated 4 outlets to the 12,000
square foot store format.
In keeping with the changing trends, Staples has been focusing on
boosting its online presence to drive sales. All these efforts
along with economic recovery are likely to reinstate Staples on its
Staples carries a Zacks Rank # 3 (Hold).
Key Picks from the Sector
Better-ranked retail stocks worth investment include
Five Below, Inc.
Office Depot, Inc.
). Both carry a Zacks Rank #2 (Buy).
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