Staples' EPS Beats, Guides Same - Analyst Blog
November 14 2012 - 4:40AM
Zacks
Staples Inc.
(SPLS) recently posted third-quarter 2012 earnings of 46 cents a
share, beating the Zacks Consensus Estimate by a penny and remained
in line with the prior-year quarter’s earnings. Including one-time
items, loss per share came in to 85 cents against earnings of 46
cents in the prior-year quarter.
Recently, one of the company’s
peers, OfficeMax Inc. (OMX) posted adjusted
earnings of 27 cents a share, which modestly exceeded the Zacks
Consensus Estimate by a penny.
Staples reported total sales of
$6,353.1 million, down 2.0% year over year and well below the Zacks
Consensus Estimate of $6,461.0 million. On a local currency basis,
total sales dipped 1.4% in the quarter.
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%. The year-over-year decline is
attributable to investments made for implementing strategic plans
along with lower product margins at North American Delivery segment
and International segment, partially offset by lower compensation
and promotional expenses.
Segment
Details
North American
Delivery sales inched up 1% (in U.S. dollars) year over
year to $2,609.0 million. The increase in revenue was driven by
sales increases in facilities and breakroom supplies and copy and
print services, partially offset by sales decrease due to the
absence of two large contract customers. Operating margin decreased
76 basis points to 8.7%, reflecting lower product margins and heavy
investments, offset in part by lower promotional expenses.
North American
Retail sales remained flat at $2,646.6 million during the
quarter compared with the last year quarter. Comparable-store sales
crept down 1%, reflecting a 2% decline in customer traffic, which
was partly offset by a hike of 1% in average order size. Operating
margin expanded 9 basis points to 10.8%, driven by reduced
operating and distribution expenses, partially offset by
investments made for marketing the products.
International
sales plunged 12% (in U.S. dollars) year over year to
$1,097.6 million, reflecting a decrease of 6% in comparable-store
sales in Europe coupled with sluggishness in Australia. The segment
reported an operating loss during the quarter, due to deleveraging
of fixed expenses in Europe and Australia and decrease in product
margins in Europe, offset in part by reduced salary expenses in
Europe and Australia arising from job cuts.
Guidance
The company maintained its guidance
for fiscal 2012 and anticipates total sales to remain at part with
the prior year level. Earnings per share are expected to rise in
low single-digit percentage.
Other Financial
Details
The company ended the quarter with
cash and cash equivalents of $1,020.0 million, long-term debt of
$1,541.8 million and shareholders’ equity of $6,171.6 million,
excluding non-controlling interests of $7.2 million. Year-to-date,
Staples generated operating cash flows of about $895.0 million and
incurred capital expenditures of $204 million.
The company generated free cash
flow of $691 million and expects to generate more than $1 billion
of free cash flow in fiscal 2012. During the reported quarter,
Staples repurchased 9.4 million shares for $111.0 million,
resulting in year-to-date repurchases of 27.4 million shares
amounting to $362.0 million. By the end of the fiscal, Staples
plans to buy back shares of worth $450.0 million.
Moreover, the company reduced a
debt on bonds by paying an amount equivalent to $325.0 million,
which matured on October 1, 2012.
Currently, we prefer to maintain a
long-term ‘Underperform’ recommendation on the stock. However,
Staples has a Zacks #3 Rank, which translates into a short-term
Hold rating for the next 1-3 months.
OFFICEMAX INC (OMX): Free Stock Analysis Report
STAPLES INC (SPLS): Free Stock Analysis Report
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