A month has gone by since the last earnings report for Staples, Inc. . Shares have added about 1.5% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Staples Q1 Earnings Meet, Sales Miss; Guides Q2
Staples, Inc. reported in-line earnings for the fourth straight quarter, when it reported first-quarter fiscal 2017 results. This office supplies retailer posted adjusted earnings of $0.17 per share that met the Zacks Consensus Estimate but declined 11% from the year-ago period.
Management now envisions second quarter earnings from continuing operations in the band of $0.10–$0.13 per share.
Staples’ top-line continues to struggle, missing the Zacks Consensus Estimate for the third straight quarter. Sales of $4,149 million lagged the Zacks Consensus Estimate of $4,539 million and declined 4.9% year over year. Comparable sales declined 2.6% during the quarter.
Analysts pointed out that 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 such as Amazon.com, Inc. has been playing spoilsport for Staples, which concluded the sale of its businesses in Europe, Australia and New Zealand.
Staples’ adjusted operating income came in at $171 million down from $186 million in the year-ago quarter. Adjusted operating margin contracted 15 basis points (bps) to 4.1%.
Strategic Endeavors Undertaken
Staples is streamlining its operations to enhance productivity and performance in North America by expanding services, strengthening customer base, shutting down underperforming stores and decreasing fixed costs. In order 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 an independent office products dealer, Acquired Capital Office Products. Management is concentrating on several Pro categories, which comprises facilities, break room, furniture, technology solutions and promotional products.
Staples continued with its plan to close stores in North America. In the reported quarter, the company shuttered 18 outlets. Additionally, it plans to close about 70 stores in North America during fiscal 2017.
Segment Details
North American Delivery sales dipped 2.8% to $2,635 million, while comparable sales fell 1%. Growth witnessed across facilities supplies, breakroom supplies and technology solutions, were offset by declines in ink and toner as well as office supplies. Staples Business Advantage sales decreased 2% on a GAAP basis.
Operating income came in at $137 million, down 13.8% year-over-year, whereas operating margin shriveled 66 bps to 5.2%.
Sales at North American Retail declined 8.2% to $1,514 million on account of store closures. Comparable store sales fell 6%. The company witnessed sluggishness across ink and toner, technology products and office supplies.
Operating income increased 8.2% to $53 million, while operating margin expanded 54 bps to 3.5%.
Other Financial Details
Staples ended the quarter with cash and cash equivalents of $1,290 million, long-term debt of $526 million, and shareholders’ equity of $3,360 million, excluding non-controlling interest of $8 million.
During the quarter, the company generated $258 million of cash provided by operating activities and incurred capital expenditures of $37 million, thus resulting in free cash flow of about $221 million. The company anticipates generating free cash flow of at least $500 million in fiscal 2017.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.
VGM Scores
At this time, Staples' stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with a 'D'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
The stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.
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Staples (SPLS) Up 1.5% Since Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Staples, Inc. . Shares have added about 1.5% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Staples Q1 Earnings Meet, Sales Miss; Guides Q2
Staples, Inc. reported in-line earnings for the fourth straight quarter, when it reported first-quarter fiscal 2017 results. This office supplies retailer posted adjusted earnings of $0.17 per share that met the Zacks Consensus Estimate but declined 11% from the year-ago period.
Management now envisions second quarter earnings from continuing operations in the band of $0.10–$0.13 per share.
Staples’ top-line continues to struggle, missing the Zacks Consensus Estimate for the third straight quarter. Sales of $4,149 million lagged the Zacks Consensus Estimate of $4,539 million and declined 4.9% year over year. Comparable sales declined 2.6% during the quarter.
Analysts pointed out that 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 such as Amazon.com, Inc. has been playing spoilsport for Staples, which concluded the sale of its businesses in Europe, Australia and New Zealand.
Staples’ adjusted operating income came in at $171 million down from $186 million in the year-ago quarter. Adjusted operating margin contracted 15 basis points (bps) to 4.1%.
Strategic Endeavors Undertaken
Staples is streamlining its operations to enhance productivity and performance in North America by expanding services, strengthening customer base, shutting down underperforming stores and decreasing fixed costs. In order 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 an independent office products dealer, Acquired Capital Office Products. Management is concentrating on several Pro categories, which comprises facilities, break room, furniture, technology solutions and promotional products.
Staples continued with its plan to close stores in North America. In the reported quarter, the company shuttered 18 outlets. Additionally, it plans to close about 70 stores in North America during fiscal 2017.
Segment Details
North American Delivery sales dipped 2.8% to $2,635 million, while comparable sales fell 1%. Growth witnessed across facilities supplies, breakroom supplies and technology solutions, were offset by declines in ink and toner as well as office supplies. Staples Business Advantage sales decreased 2% on a GAAP basis.
Operating income came in at $137 million, down 13.8% year-over-year, whereas operating margin shriveled 66 bps to 5.2%.
Sales at North American Retail declined 8.2% to $1,514 million on account of store closures. Comparable store sales fell 6%. The company witnessed sluggishness across ink and toner, technology products and office supplies.
Operating income increased 8.2% to $53 million, while operating margin expanded 54 bps to 3.5%.
Other Financial Details
Staples ended the quarter with cash and cash equivalents of $1,290 million, long-term debt of $526 million, and shareholders’ equity of $3,360 million, excluding non-controlling interest of $8 million.
During the quarter, the company generated $258 million of cash provided by operating activities and incurred capital expenditures of $37 million, thus resulting in free cash flow of about $221 million. The company anticipates generating free cash flow of at least $500 million in fiscal 2017.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.
Staples, Inc. Price and Consensus
Staples, Inc. Price and Consensus | Staples, Inc. Quote
VGM Scores
At this time, Staples' stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with a 'D'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
The stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.