Earnings Preview: Staples (SPLS)

Leading retailer of office products and services, Staples, Inc. (SPLS), is slated to report its fourth-quarter 2010 financial results on March 2, 2011. The current Zacks Consensus Estimate for the quarter is 41 cents a share. For the quarter under review, revenue is $6,493 million, according to the Zacks Consensus Estimate.

Third-Quarter 2010, a Synopsis

Staples’ third-quarter 2010 earnings of 41 cents a share came a penny ahead of the Zacks Consensus Estimate and rose 5.1% from 39 cents earned in the prior-year quarter. On a reported basis, including one-time items, earnings came in at 40 cents a share, up 8.1% from 37 cents posted in the year-ago quarter.

Despite a marginal increase in the top-line, Staples was able to deliver a mid single-digit growth in its bottom-line on the back of effective cost management.

Staples reported total sales of $6,537.7 million that rose marginally by 0.3% from the prior-year quarter, and came ahead of the Zacks Consensus Revenue Estimate of $6,536 million.

Guidance

Staples at its last earnings release forecasted sales to rise in the low single digits in the fourth quarter and fiscal year 2010, and to increase in the low to mid, single digits in fiscal 2011.

Management had predicted the fourth quarter earnings in the range of 39 cents to 41 cents and fiscal year 2010 earnings between $1.27 and $1.29 per share. For fiscal 2011, Staples projected earnings in the range of $1.50 to $1.60.

Fourth-Quarter 2010 Zacks Consensus

The analysts considered by Zacks, expect Staples to post fourth-quarter 2010 earnings of 41 cents a share. The current Zacks Consensus Estimate reflects a growth of 7.9% from the prior-year quarter’s earnings. The current Zacks Consensus Estimate for the quarter ranges between 39 cents and 42 cents.

Zacks Agreement & Magnitude

In the last 30 days, one out of the 18 analysts covering the stock increased the projection, and 4 analysts revised their estimates downwards making no material impact on the Zacks Consensus Estimate. In the last 7 days, none of the analysts have changed their estimates, keeping the Zacks Consensus Estimate constant.

Mixed Earnings Surprise History

With respect to earnings surprises, Staples has met as well as topped the Zacks Consensus Estimate over the last four quarters in the range of 0.0% to 3.7%. The average remained at 3.1%. This suggests that Staples has beaten the Zacks Consensus Estimate by an average of 3.1% in the trailing four quarters.

Staples in Neutral Lane

Staples is better positioned than its competitors to sustain the growth momentum based on margin expansion, effective merchandising, and growth prospects across its retail, delivery and international divisions. With a healthy balance sheet and strong free cash flow, Staples remains committed to enhance shareholders’ return. However, we remain cautious about the macroeconomic environment and sluggish job market. As a result, consumers and small businesses still remain watchful on their spending. We observe that the demand for office products is closely tied to the health of the economy.

Staples, which competes with Office Depot Inc. (ODP) and OfficeMax Inc. (OMX), holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ recommendation. Currently, we have a long-term ‘Neutral’ rating on the stock.

STAPLES INC (SPLS): Free Stock Analysis Report

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