Staples Limits Interest Outflow - Analyst Blog
January 08 2013 - 11:00AM
Zacks
In a strategic move to reduce
interest expenses, Staples Inc. (SPLS) announced
the simultaneous offering and redemption of debt. The company
announced the offering in two parts of $500 million each, priced at
2.75% due January 12, 2018 and 4.375% due January 12, 2023,
respectively.
The company expects to close the
offering on January 14, 2013 and receive net proceeds of $993.8
million after underwriting discount. Subsequently, the company
announced a tender offer to repurchase its $750 million outstanding
9.750% debt due 2014 from the proceeds of the new
issuance.
Looking at the interest expenses,
the company incurred interest expense of $40.3 million during the
third quarter of fiscal 2012, while interest expense came in at
$124.2 million for the 39 weeks period ended October 27, 2012.
For Staples, the move is a perfect
fit as borrowing costs have gone down despite the significant
disruption in the global credit markets. In fact, many other
companies are taking a similar step to exchange their
higher-interest debt for lower-interest debt.
The move is a part of the company’s
strategic initiative to streamline its cost structure. Staples
intends to save approximately $250 million annually by the end of
fiscal 2015. Moreover, Staples remains focused on improving store
productivity by generating incremental sales per store,
accelerating growth in adjacent categories, increasing market share
in core office supplies and reviving international operations.
Being a leading retailer of office
products and services, Staples remain well positioned than its
competitors, OfficeMax Inc. (OMX) and
Office Depot Inc. (ODP), to sustain its growth
based on effective merchandising, increasing customer awareness,
enhanced online features, expanded assortments and store
refurbishing program. The company is gradually lowering its
exposure to less profitable ventures and eyeing opportunities with
lucrative growth prospects to augment profitability.
Currently, shares of Staples hold a
Zacks #2 Rank that translates into a short-term “Buy” rating, and
well defines the measures undertaken by the company to uplift
itself.
However, we maintain our long-term
‘‘Neutral’’ rating on the stock as we remain cautious on the
macroeconomic environment and a sluggish job market, with small
businesses and consumers still remaining watchful on their
spending.
OFFICE DEPOT (ODP): Free Stock Analysis Report
OFFICEMAX INC (OMX): Free Stock Analysis Report
STAPLES INC (SPLS): Free Stock Analysis Report
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