Earnings Preview: Staples (SPLS)

Staples Inc. (SPLS), the global leader in the supply of office products, is scheduled to report its second-quarter 2010 financial results before the bell on Thursday, August 19, 2010. The current Zacks Consensus Estimate for the quarter is 20 cents a share.

First-Quarter 2010, a Synopsis

Staples reported better-than-expected first quarter results, but provided a moderate outlook. The quarterly earnings of 28 cents a share rose 27.3% from 22 cents posted in the prior-year quarter, and surpassed the Zacks Consensus Estimate by a penny.

Total sales were $6,057.8 million, up 4.1% from the prior-year quarter, boosted by Staples’ improving North American Retail and International operations.

Management now expects second-quarter earnings in the range of 18 cents to 20 cents and fiscal 2010 earnings between $1.25 and $1.33 per share. The office products retailer, which expects a modest recovery in 2010, forecasts sales to rise in the low-single digit in the second quarter and fiscal year 2010.

Second-Quarter 2010 Consensus

Analysts surveyed by Zacks, expect Staples to post second-quarter 2010 earnings of 20 cents a share. The current Zacks Consensus Estimate represents a year-over-year growth of 25%.

The current Zacks Consensus Estimate has remained stagnant over the last 30 days; with only one out of the 18 analysts covering the stock revising his estimate downward and none of them increasing their estimates, leaving the consensus unchanged. In the last 7 days too, the Zacks Consensus Estimate did not budge.

The estimates in the current Zacks Consensus for the quarter range from a low of 18 cents to a high of 22 cents.

Earnings Surprise History

With respect to earnings surprises, Staples has remained in line or topped the Zacks Consensus Estimate over the last four quarters in the range from 0.0% to 3.7%. The average remained at 3.2%. This suggests that Staples has outperformed the Zacks Consensus Estimate by an average of 3.2% in the last four quarters.

Our View

Being a leading retailer of office products and services, Staples is better positioned than its competitors to benefit from the economic recovery, and is poised to sustain its growth momentum based on margin expansion, effective merchandising, and growth prospects across its retail, delivery and international divisions.

However, we remain cautious about the macro-economic environment and sluggish job market that may weigh upon the results. Recently, Office Depot Inc. (ODP), one of the closest rivals of Staples, witnessed comparable-store sales decline of 1.0% at its North American Retail division and a 5.5% sales decline at its North American Business Solutions division during the second quarter of 2010.

Another competitor, OfficeMax Inc. (OMX) registered comparable-store sales decline of 0.3% at its retail segment and a sales decline of 3.6% at its U.S. Contract operations. The office supplies retailer hinted that it now expects third quarter 2010 sales to be slightly lower than the year-ago quarter, and fiscal 2010 sales to be flat to marginally lower than 2009.

The recovery in the economy still lacks luster. 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.

Currently, Staples holds a Zacks #4 Rank, which translates into a short-term ‘Sell’ recommendation.

STAPLES INC (SPLS): Free Stock Analysis Report

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