Staples Inc. (SPLS) has taken up various initiatives to battle weakness in the office supplies industry as well as rising competition especially from retailers like Amazon (AMZN). Though the initiatives are in the right direction, it will take time for these to pay off as turnaround strategies are often time consuming. Hence, things might get a little difficult for Staples before they start to get better.
This was reflected in the company's third-quarter fiscal 2014 results, which were marred by store closures and unfavorable foreign exchange fluctuations. Although earnings per share of 37 cents came in line with the Zacks Consensus Estimate, it fell 11.9% year over year. Revenues of $5,961.5 million were ahead of the Zacks Consensus Estimate of $5,936 million but fell 2.5% year over year. Both gross and operating margins were also down year over year.
Anticipating not much relief in the near term, management issued a cautious guidance for the coming quarter. The company expects lower sales for the fourth-quarter of fiscal 2014 compared with the prior-year quarter figure. Further, earnings per share are likely to be in the range of 27–32 cents as against 33 cents earned in the fourth quarter of fiscal 2013.
Staples' turnaround strategy includes expansion of e-commerce and aggressive store rationalization, apart from initiating a cost reduction program. The company plans to close nearly 225 stores across North America by 2015.
In the third-quarter of 2014, the company shuttered 31 stores bringing the total store closure to 127 year-to-date. Going forward, the company now expects to close 170 stores in fiscal 2014 as against 140 projected earlier. Also, it initiated 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.
Till date, the company achieved $200 million in annualized cost reductions. Additionally, the company is focusing on the delivery business, which requires less capital and generates higher margins.
Staples is a Zacks Rank #3 (Hold) stock.
Other Stock to Consider
Other better ranked retail stock worth consideration include Build-A-Bear Workshop Inc. (BBW), PetSmart, Inc. (PETM) and Bed Bath & Beyond Inc. (BBBY). Build-A-Bear and PetSmart sport a Zacks Rank #1 (Strong Buy) while Bed Bath & Beyond is a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.
ENTER TO WIN $500 IN STOCK OR CRYPTO
Enter your email and you'll also get Benzinga's ultimate morning update AND a free $30 gift card and more!
STAPLES INC (SPLS): Free Stock Analysis Report
AMAZON.COM INC (AMZN): Free Stock Analysis Report
PETSMART INC (PETM): Free Stock Analysis Report
BED BATH&BEYOND (BBBY): Free Stock Analysis Report
BUILD-A-BEAR WK (BBW): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research