Staples, Inc. (SPLS): A Look at Office Supply Retailers

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Staples (SPLS)I first blogged about the office supply retail store operators in December of last year (see my December blog.) Since then, the largest component of that industry, Staples, Inc. (NASDAQ:SPLS), has seen a substantial boost to its share price.

May-quarter earnings appear to have incited investors to further bid up the shares, as profitability is improving and full-year revenues are on track to climb. In all, management seems to be taking the initiatives required to support a turnaround of the company’s bottom line.

E-commerce sales expansion

The primary measure Staples, Inc. (NASDAQ:SPLS) has undertaken is a heightened investment in the product assortment that the company offers through its online channel and external websites. It also is generating increased customer interest and enrollments through a new Rewards program.

Product-wise, Staples, Inc. (NASDAQ:SPLS) is experiencing rising demand for facilities and breakroom merchandise, as well as for tablets and mobile technology. In-store services are bringing in additional traffic, too, and the North American Commercial segment is already garnering sales growth.

Staples, Inc. (NASDAQ:SPLS) remains focused on improving its online marketplace which includes sites in the U.S. and Canada. The offering of several delivery preferences, namely ship-to-store and reserve for pickup, have been rolled out. As website visitors continue to grow in number, we look for retail customer sales to advance.

Margins apt to gain ground

Efforts to reduce the company’s expense base, partly through the rationalizing of its nearly 1,900 stores as a means to drive sales growth, are likely to have a positive impact. Comparable-store sales could well show positive effects as a result of the activity, along with potentially better returns on invested capital.

The ultimate effect of management’s strategy should be a boost to the company’s operating margin. Another action that might allow for an increase in profitability is the aforementioned shift of its merchandise mix to feature an increased number technology items such as tablets which lift the average receipt total.

All in all, Staples, Inc. (NASDAQ:SPLS) is in line for improved results. Share earnings are targeted to come in between $1.30 and $1.35 for this fiscal year, which ends next February. It is worth considering in light of the positive earnings trends that may result, or as a candidate for long-term portfolio holding.

OfficeMax and Office Depot

Staples’ major competitors in the office supply market are OfficeMax Inc (NYSE:OMX) and Office Depot Inc (NYSE:ODP). The two currently have an agreement to merge, with the former’s shareholders set to receive 2.69 of the latter’s shares for each share held.

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