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Staples (SPLS) Strategic Efforts Bode well: Should You Hold?
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At times it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions. These stocks rally as soon as the market enters into a correction mode. Here, we have discussed one such stock, Staples, Inc. with a VGM Score of “A”.
We noted that the shares of the company has increased 8.7% in the past three months, outperforming the Zacks categorized Retail-Miscellaneous/Diversified industry that has witnessed an increase of 2.3%. However, if we look at the stock’s year-to-date performance, it reflects a bleak picture. So far in the year, the stock has declined approximately 3%. So, an obvious question arises, whether the stock’s recent bullish run is sustainable?
Hidden Catalysts
After the termination of the merger with Office Depot, Inc. (ODP - Free Report) , Staples has undertaken a strategic review to bring the company back on growth track. The company has outlined plans to increase long-term value. Further, it is streamlining operations to enhance productivity and performance in North America by expanding services, strengthening customer base, shutting down underperforming stores and decreasing fixed costs. In a bid to acquire new customers, the company intends to increase its offering of products as well as services beyond office supplies. The company is trying to firm its position in mid-market contracts, as evident from the buyout of Acquired Capital Office Products, an independent office products dealer.
With respect to the cost containment efforts, management is employing a more efficient customer coverage model, focusing on lowering indirect procurement costs, enhancing supply chain and increasing mix of Staples’ brand products. Moreover, Staples has commenced a new cost-saving program to garner nearly $300 million of annualized pre-tax savings by 2018. The company also remains on track to attain approximately $70 million of annualized pre-tax cost savings in fiscal 2016.
Further, the company remains focused on optimal store site in order to boost store productivity. The company intends to concentrate more on improving sales per square foot through an increase in customer traffic and by converting them into potential buyers. It intends to create potential buyers through targeted advertising, ongoing sales training and customer-oriented initiatives. The company provides assistance to customers with respect to PC maintenance, removal of viruses and others.
Hurdles to Overcome
Demand for office products (paper-based) has been decreasing due to technological advancements. Smartphones, tablets and laptops are fast emerging as viable substitutes for paper-based office supplies. Moreover, there has been persistent weakness in the office products sector. Further, stiff competition from online retailers and unfavorable currency fluctuations has been playing spoilsport for Staples. For the fourth quarter of fiscal 2016, management expects sales to decline compared with the year-ago period.
Sluggish international sales continue to concern Staples. International sales had declined 18.9%, 17.2%, 16.8% and 12%, during the first, second, third and fourth quarters of fiscal 2015, respectively. During the first, second and third quarters of fiscal 2016, revenues from international operations declined 5.6%, 7.5% and 7.2%, respectively. International sales were soft owing to a weak macroeconomic environment, particularly in Europe.
Shares of Dick's Sporting Goods have surged more than 48% in the past one year and the company also has an impressive long-term earnings growth rate of 12.8%.
Tractor Supply has an impressive long-term earnings growth rate of 16.3%.
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Staples (SPLS) Strategic Efforts Bode well: Should You Hold?
At times it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions. These stocks rally as soon as the market enters into a correction mode. Here, we have discussed one such stock, Staples, Inc. with a VGM Score of “A”.
We noted that the shares of the company has increased 8.7% in the past three months, outperforming the Zacks categorized Retail-Miscellaneous/Diversified industry that has witnessed an increase of 2.3%. However, if we look at the stock’s year-to-date performance, it reflects a bleak picture. So far in the year, the stock has declined approximately 3%. So, an obvious question arises, whether the stock’s recent bullish run is sustainable?
Hidden Catalysts
After the termination of the merger with Office Depot, Inc. (ODP - Free Report) , Staples has undertaken a strategic review to bring the company back on growth track. The company has outlined plans to increase long-term value. Further, it is streamlining operations to enhance productivity and performance in North America by expanding services, strengthening customer base, shutting down underperforming stores and decreasing fixed costs. In a bid to acquire new customers, the company intends to increase its offering of products as well as services beyond office supplies. The company is trying to firm its position in mid-market contracts, as evident from the buyout of Acquired Capital Office Products, an independent office products dealer.
With respect to the cost containment efforts, management is employing a more efficient customer coverage model, focusing on lowering indirect procurement costs, enhancing supply chain and increasing mix of Staples’ brand products. Moreover, Staples has commenced a new cost-saving program to garner nearly $300 million of annualized pre-tax savings by 2018. The company also remains on track to attain approximately $70 million of annualized pre-tax cost savings in fiscal 2016.
Further, the company remains focused on optimal store site in order to boost store productivity. The company intends to concentrate more on improving sales per square foot through an increase in customer traffic and by converting them into potential buyers. It intends to create potential buyers through targeted advertising, ongoing sales training and customer-oriented initiatives. The company provides assistance to customers with respect to PC maintenance, removal of viruses and others.
Hurdles to Overcome
Demand for office products (paper-based) has been decreasing due to technological advancements. Smartphones, tablets and laptops are fast emerging as viable substitutes for paper-based office supplies. Moreover, there has been persistent weakness in the office products sector. Further, stiff competition from online retailers and unfavorable currency fluctuations has been playing spoilsport for Staples. For the fourth quarter of fiscal 2016, management expects sales to decline compared with the year-ago period.
Sluggish international sales continue to concern Staples. International sales had declined 18.9%, 17.2%, 16.8% and 12%, during the first, second, third and fourth quarters of fiscal 2015, respectively. During the first, second and third quarters of fiscal 2016, revenues from international operations declined 5.6%, 7.5% and 7.2%, respectively. International sales were soft owing to a weak macroeconomic environment, particularly in Europe.
Staples currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks worth considering include Dick's Sporting Goods, Inc. (DKS - Free Report) and Tractor Supply Company (TSCO - Free Report) . Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Shares of Dick's Sporting Goods have surged more than 48% in the past one year and the company also has an impressive long-term earnings growth rate of 12.8%.
Tractor Supply has an impressive long-term earnings growth rate of 16.3%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>