In an attempt to capture incremental revenue, Staples, Inc. (SPLS - Free Report) is offering a 110% price match for the upcoming back-to-school season. This is in sync with its new tagline “Make More Happen for Less”.
Staples will match prices of other retailers including online giant Amazon.com Inc. (AMZN - Free Report) and will give an additional 10% off on the difference between its price and the competitor’s price. Beginning Jun 29, 2014, this offer, available both online as well as in stores, will provide Staples customers with the best bargain possible. In addition to 110% price match, Staples will continue to offer weekly deals.
Staples has been battling declining revenues and shrinking margins for sometime now. Stiff competition from online giants has seized a large share of its profits. Moreover, the secular and cyclical headwinds in the office supplies industry have considerably reduced the demand for big ticket items.
To mitigate its troubles, Staples has been focusing on closing and right sizing its stores. Recently the company initiated a cost reduction program to achieve pre-tax cost savings of about $500 million annually by fiscal 2015 with the majority of savings expected to come from retail store closures, supply chain, labor optimization and customer service. The company achieved annualized cost reduction of $100 million in the first quarter of 2014 and expects $250 million in reductions for 2014. Also, the company is emphasizing on increasing online sales to keep up with changing trends.
However, we believe it will take some time for Staples to return to profitability. This is because Staples’ ongoing investment strategies along with store rationalization and the structural challenges presented by the office supplies sector are likely to run down benefit from the cost cutting initiative. This was well reflected in management’s cautious commentary.
The company expects lower sales for the second quarter of fiscal 2014 compared with the prior-year quarter figure. Also, earnings per share are expected to be in the range of 9–14 cents as against 16 cents per share earned in the year-ago quarter. We also believe that given the near-term challenges, margins will continue to be under pressure.
Staples carries a Zacks Rank #3 (Hold). Some better-ranked retail stocks worth considering include Office Depot, Inc. (ODP - Free Report) and Five Below, Inc. (FIVE - Free Report) . Both carry a Zacks Rank #2 (Buy).