Why Is Staples (SPLS) Up 14.8% Since the Last Earnings Report?

A month has gone by since the last earnings report for Staples, Inc. SPLS. Shares have added about 14.8% in that time frame, outperforming 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 Q4 Earnings Meet Estimates, Issues Guidance

Staples reported in-line earnings for the third straight quarter, when it posted fourth-quarter fiscal 2016 results. This office supplies retailer delivered adjusted earnings of $0.25 per share that met the Zacks Consensus Estimate but declined 4% from the year-ago period. Management projects first-quarter fiscal 2017 earnings in the range of $0.15–$0.18 per share.

The company’s total sales declined 2.9% year over year to $4,560 million, and also lagged the Zacks Consensus Estimate of $5,025 million for the second consecutive quarter. Comparable sales fell 0.9%. Stiff competition and sluggish demand for paper-based office products due to technological advancements remain major concerns for Staples.

Concurrent with the earnings release, the company announced that it has completed the sale of UK retail business and operations. Moreover, during the fourth quarter, Staples also reached an agreement to sell a controlling interest in remaining European operations and also completed the sales of the same in Feb 2017. Further, the company announced the buyout of an independent office products dealer, Acquired Capital Office Products.

Moreover, Staples continued with its plan to close stores in North America. In the reported quarter, the company shuttered 13 outlets, while it has closed 48 stores year to date. Additionally, it has plans to close at least 70 stores in North America during fiscal 2017.

Staples’ adjusted operating income came in at $243 million compared with $261 million in the year-ago quarter. Operating margin contracted 21 basis points (bps) to 5.3%.

Segment Details

Following the implementation of Staples’ 20/20 strategic plan, the company changed business segment to North American Delivery and North American Retail.

North American Delivery sales dipped 1.2% to $2,649 million, while comparable sales increased 1%. Growth witnessed across facilities supplies, breakroom supplies, and technology products, were partly offset by declines in ink and toner as well as office supplies. Operating income came in at $168 million, flat year-over-year. Operating margin expanded 10 bps to 6.4%.

Sales at North American Retail declined 8.2% to $1,649 million on account of store closures. Comparable sales fell 7%. The company witnessed sales decline across ink and toner, business machines, technology accessories and mobility, which were partly mitigated by growth registered in print and marketing services. Operating income tumbled 6.6% to $99 million, while operating margin expanded 11 bps to 6%.

Other Financial Details

Staples ended the quarter with cash and cash equivalents of $1,137 million, long-term debt of $529 million, and shareholders’ equity of $3,688 million, excluding non-controlling interest of $8 million.

For the 52-week period ended Jan 28, 2017, net cash provided by operating activities was $934 million and the company spent $255 million on the buyout of property and equipment, thus resulting in free cash flow generation of about $679 million. The company anticipates generating free cash flow of at least $500 million in fiscal 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one upward revision for the current quarter.

Staples, Inc. Price and Consensus

 

Staples, Inc. Price and Consensus | Staples, Inc. Quote

VGM Scores

At this time, Staples' stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% 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.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of this revision also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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