OMX Officemax Incorporated

Staples Inc. (SPLS), a leading retailer of office products and services, is scheduled to report its first-quarter 2011 financial results on May 18, 2011. The current Zacks Consensus Estimate for the quarter is 32 cents a share. For the quarter under review, revenue is $6,225 million, according to the Zacks Consensus Estimate.

Fourth-Quarter 2010, a Synopsis

Staples posted lower-than-expected fourth-quarter 2010 results. The quarterly earnings of 39 cents per share missed the Zacks Consensus Estimate of 41 cents but rose 2.6% from 38 cents earned in the prior-year quarter.

On a reported basis, including one-time items, earnings came in at 38 cents per share, up 18.8% from 32 cents posted in the year-ago quarter.

Staples reported total sales of $6,415.4 million that rose marginally by 0.1% from the prior-year quarter, but fell short of the Zacks Consensus Estimate of $6,488 million. Management indicated that inclement weather had adversely impacted the fourth-quarter sales. The office products retailer notified that bad weather hurt its top line by $70 million and bottom line by 3 cents per share. However, it hinted that first-quarter 2011 sales are portraying improving trends.

First-Quarter 2011 Zacks Consensus

Analysts considered by Zacks expect Staples to post first-quarter 2011 earnings of 32 cents a share. The current Zacks Consensus Estimate is 14.3% above the prior-year quarter earnings.

Zacks Agreement & Magnitude

Of the 15 analysts following the stock, none of the analysts have revised their estimates in the last 30 or 7 days keeping the Zacks Consensus Estimate unchanged.

Mixed Earnings Surprise History

With respect to earnings surprises, Staples has missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range of -4.9% to 3.7%. The average remained at 0.4%. This suggests that Staples has beaten the Zacks Consensus Estimate by an average of 0.4% in the trailing four quarters

Current Outlook

Staples is better positioned than its competitors to sustain its growth momentum based on margin expansion, effective merchandising, and growth prospects across its retail, delivery and international divisions.

Anticipating a moderate recovery in the economy, Staples is making prudent investments in the highly fragmented North American retail market for expanding its business technology, and also copy and print services that generate higher profit margins.

However, we remain cautious about the macroeconomic environment and sluggish job market. The decline in business and consumer spending and weak credit markets have resulted in slow demand for big-ticket items such as business machines and other durable products. We observe that the demand for office products is closely tied to the health of the economy.

Given the pros and cons, we prefer to maintain a long-term “Neutral” rating on the stock. Staples, which competes with Office Depot Inc. (ODP) and OfficeMax Inc. (OMX), has a Zacks #4 Rank, which translates into a short-term ‘Sell’ recommendation

 
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