Staples in Neutral Lane - Analyst Blog

Being a leading retailer of office products and services, Staples, Inc. (SPLS) is better positioned than its competitors to benefit from the economic recovery, and is poised to sustain growth based on its margin expansion, effective merchandising, and growth prospects across its retail, delivery and international divisions.
 
Staples, which anticipates a modest recovery in the economy in fiscal 2010, is making prudent investments in the highly fragmented North American retail market to expand its business technology, and copy and print services that generate higher profit margins.
 
Staples has been actively managing its cash flows. Management expects to generate more than $1 billion of free cash flows in fiscal 2010. The company also resumed its share repurchase activity during second-quarter 2010, which was suspended in first-quarter 2008.
 
The second-quarter earnings of 20 cents a share remained in line with the Zacks Consensus Estimate and rose 25% from 16 cents earned in the prior-year quarter. Staples reported total sales of $5,534.2 million, which remained flat compared with the prior-year quarter but fell short of the Zacks Consensus Revenue Estimate of $5,621 million.
 
Management now expects third-quarter earnings in the range of 39 cents to 41 cents and fiscal year 2010 earnings between $1.25 and $1.29 per share. Staples expects a modest recovery in the second-half of 2010, forecasting sales to rise in the low-single digits in the third quarter and fiscal year 2010.
 
However, we remain cautious about the macro-economic environment and sluggish job market. The recovery in the economy still lacks luster. As a result, consumers and small businesses still remain watchful about their spending on big-ticket items such as business machines and other durable products. We observe that the demand for office products is closely tied to the health of the economy.
 
Staples, which competes with Office Depot Inc. (ODP) and OfficeMax Inc. (OMX) holds a Zacks #3 Rank, translating into a short-term ‘Hold’ recommendation and correlating with our Neutral rating on the stock.
 
 
OFFICE DEPOT (ODP): Free Stock Analysis Report
 
OFFICEMAX INC (OMX): Free Stock Analysis Report
 
STAPLES INC (SPLS): Free Stock Analysis Report
 
Zacks Investment Research