Staples Inc. financial analysis and restructuring challenges in 2012

Staples

Full Analysis of Staples for 2012

Throughout 2012, Staples has been in the process of going through a major restructuring. This is because the firm is experiencing challenges associated with the fiscal cliff, intense competition from rivals and stagnant consumer spending in key markets (most notably: North America, Australia and Europe). ("Staples Inc.") This is illustrating how the company has been dealing with major challenges that are hurting their business model.

Valuation Analysis

The valuation analysis reveals that, the company is unstable. This is because they are having trouble adjusting with the difficult economic environment. It has an average PE ratio of 10.25. On the surface, this appears to be undervalued. However, the company has been lowering guidance citing difficult conditions in North America, Australia and Europe. As a result, Value Line has the stock listed as underperform for 2013. ("Staples Inc.") ("Staples Inc. Data")

International Presence and Impacts

Staples, is facing challenges from their presence in Europe and Australia. This is because the financial crisis is has been negatively effecting sales at numerous locations. The impact is that the company is closing down stores and they have been restructuring. Evidence of this can with observations from Value Line which wrote, "Longer term, Staples wants to improve its cost structure, as it embarks on a $250 million savings plan by mid-2015. Downsizing initiatives in both foreign and domestic retail markets are well underway. Specifically, it aims to reduce about 15,000 square feet in U.S. stores through 2015. In addition, SPLS is consolidating operations in Europe and Australia. It is expecting cost reductions between $40 million and $50 million to be distributed throughout the upcoming fiscal year, as it plans to stream- line operations by closing 46 stores, and cut losses by closing all six stores in Belgium by 2015." This is a sign that the firm is facing tremendous challenges with their international operations. As a result, this is adversely impacting their financial position and strategies. ("Staples Inc.")

Recent News about the Company

Recently, these challenges have led to Office Depot announcing that they will purchase the company for $1.7 billion. This is because the entire sector is facing similar issues. The most effective way to deal with these difficulties is to have increased amounts of consolidation. The fact an agreement was made with Office Depot, is showing how the company is addressing severe problems. This is impacting its core business model through mergers and acquisitions. (Matthews)