What to Expect When Staples Reports Earnings

Staples Inc. (NASDAQ: SPLS) is scheduled to report its fiscal second-quarter financial results before the markets open on Wednesday. The Thomson Reuters consensus estimates are calling $0.16 in earnings per share (EPS) on revenue of $5.09 billion. In the same period of the previous year, the specialty retailer posted EPS of $0.17 and $5.26 billion in revenue.

Recently, the merger between Staples and Office Depot Inc. (NASDAQ: ODP) was denied by regulators on an antitrust basis. As the regulators saw it, this would hurt competition within this segment of the retail industry. After this decision, both companies lost their merger premiums and shares promptly dropped.

As part of the merger not going through, Staples is required to pay Office Depot a break-up fee of $250 million. Other fallout from this failed merger includes Staples terminating its agreement to sell more than $550 million in large corporate contract business and related assets to Essendant.
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Staples Chairman and CEO Ron Sargent commented on the failed merger:

We are extremely disappointed that the FTC’s request for preliminary injunction was granted despite the fact that it failed to define the relevant market correctly, and fell woefully short of proving its case. We believe that it is in the best interest of our shareholders, customers, and associates to forego appealing this decision, terminate the merger agreement, and move on with our strategic plan to drive shareholder value. We are positioning Staples for the future by reshaping our business, while increasing our focus on mid-market customers in North America and categories beyond office supplies.

A few analysts weighed in on Staples before the earnings report:

• Wells Fargo reiterated an Equal Weight rating.
• Jefferies downgraded it to Hold from Buy with a $9 price target.
• Telsey Advisory Group has a Market Perform rating with a $10 price target.
• Deutsche Bank reiterated a Hold rating.
• Morgan Stanley reiterated an Equal Weight rating with a $10.50 price target.

So far in 2016, Staples has underperformed the broad markets, with the stock down nearly 11%. Over the past 52 weeks, the stock is down about 50%.

Shares of Staples were trading down 0.6% at $8.29 Tuesday afternoon, with a consensus analyst price target of $10.58 and a 52-week trading range of $8.04 to $16.74.