SPLS - Staples

[tombgrt]

Has anyone looked at SPLS yet?

 

Dropped 25% since it reported earnings, expects $1,35-1,45 EPS for 2011. As a market leader it has much higher margins than others.

 

Close to a 8-year low now. Classic overreaction?

[PlanMaestro]

New Web Victim: Office-Supply Store

http://online.wsj.com/article/SB10000872396390444358804578018082713484050.html

 

Battered in the recession, the office-supply business emerged to face new obstacles. Small-business growth has been soft during the slow economic rebound. Government budgets have shrunk. Add to those woes the online competition from rivals such as Amazon.com Inc. AMZN +2.77% and then the introduction of the iPad and other handheld devices, which are paring demand for personal computers, printers and other office accessories.

 

"The No. 1 reason for softness in this business is the iPad," said Gary Balter, retail analyst at Credit Suisse. "Look at how much less we print today."

 

On Tuesday, Staples Inc.  said it plans to reduce its U.S. store space by 15% as part of a wider reorganization of its business, the latest example of how office-supply chains are struggling to stay relevant as more shoppers buy products like computers, pens, paper and paper clips online.

 

Like rivals OfficeMax Inc. and Office Depot Inc., Staples has been shrinking its stores and opening smaller, convenience-focused shops, as it tries to adapt to the changes in shopping behavior that are hurting many big-box specialty retailers. But analysts and some investors maintain the changes aren't happening fast enough. The office-store category is glutted with giant sales floors and little opportunity for growth, as the rise of smartphones and computers results in more business being done digitally instead of on paper. At the end of fiscal 2011, Staples had 2,295 stores world-wide and 1,500 in the U.S..

 

The turnaround plan by Staples, the nation's largest office-supplies chain, includes a greater focus on online operations but also involves improving the productivity of stores.

 

Staples already has a robust online office-supply business, with annual revenue of about $10 billion, making it the second largest online merchant, behind only Amazon.com Inc., AMZN +2.77% by some estimates. On Tuesday it said would invest to expand its online offerings beyond office supplies, funding the expansion by cutting $250 million in costs by the end of 2015.

 

The savings will come from closing 30 stores—about 1% of its U.S. store fleet—and cutting the size of 30 more in the U.S. during this fiscal year, as well as closing 45 stores in Europe, the company said. U.S. store square footage is being reduced by 15% by 2015.

 

 

 

[cayale]

In my opinion office products is a lousy business. Market grows 1% per annum if that and there seems to be a lot of forces diminishing even that: digitized records, less paper consumption, rise of the work from home movement, smaller square footage per employee, etc. Not saying that the retailers cannot overcome these forces but it is a share story, not a growth story. Add to that the entry into this space by walmart, costco and amazon and one can get a feel for how the industry got here. So i guess the question is, can any of the big box office retailers transform themselves to stay viable or are they melting ice cubes- the good skus picked off by general merchandisers and the market barely growing?

[LC]

Anyone taking a look at these levels? Melting ice cube I think, but how quickly it melts is IMHO the question. There's also the question of what the real estate/leases are worth.

[yadayada]

The price isn't really right. They generate about 750m in FCF in 2013. But the market cap is around 7 billion last I checked. You want them when they are really cheap. Like with best buy last year at a multiple of under 4. ANd not 10x.

[siddharth18]

Not to hijack this thread but if we're talking about melting ice-cubes, there might be better values out there. 10x FCF multiple isn't the best idea for a melting ice cube (but of course it depends on how fast it's melting).

 

I've been eyeing Outerwall (OUTR). I posted some updates http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/coinstar-cstr/msg161243/#msg161243 - per my rough calculation it generates $290M FCF and has a market cap of $1.3 billion.

 

GNCMA and INLOT.AT have better FCF yields as well.

[DCG]

These office supply stores (Staples, Office Max, Office Depot, and numerous online stores) compete on pretty much nothing but price, so they are a tough investment IMO.

[jm25]

These office supply stores (Staples, Office Max, Office Depot, and numerous online stores) compete on pretty much nothing but price, so they are a tough investment IMO.

 

I agree - I view these more as shorts than good long-term investments. As people move their shopping online, it will become even tougher for these bricks and mortar stores to compete with guys like Amazon.

[saltybit]

http://online.wsj.com/articles/home-depot-the-place-to-go-for-toilet-paper-1401991957

 

Interesting article about convergence of skus (consumer staples) of various physical retailers.