When It Comes to Office Supply Stocks, Staples Is Queen

NEW YORK ( TheStreet) -- The last episode of the very successful TV sitcom "The Office" airs Thursday night. All its loyal fans, most of whom are women, according to the television rating services, are feeling the loss.

The last time I was in a Staples ( SPLS) store in my area the majority of the shoppers were women. I asked some of them why they liked to shop there instead of ordering online.

One lady shopping for a new computer mouse said she goes to the store for certain products she wants to see, feel and inspect before buying. She knows Staples has an online presence but the bricks-and-mortar stores are staffed with friendly and helpful personnel.

Another woman shopping there had first gone to its in-store printing facility to make some copies and ship a package via UPS ( UPS) because Staples has an agreement with UPS as a drop-off location.

While there she likes to browse the aisles to examine the plethora of products and, as she put it, "remind myself of the items I need for my home office." She liked the ambiance; if she had questions, the sales personnel were standing by to assist her. That was important, from her perspective.

No wonder SPLS has survived and, for the most part thrived, since the beginning of the Great Recession that slammed down on commerce and industry. Take a peek at the company's five-year price chart along with one key financial figure that tells us about the main factor behind SPLS's price swings.

SPLS Chart SPLS data by YCharts

After shares of SPLS plunged to below $15 in late 2008 and early 2009 they changed direction and soared 67% in early 2010 on the wings of economic stimuli and renewed consumer confidence. Since then SPLS has gradually cratered to the recent 52-week low of $10.57 in the second half of 2012.

Then the latest round of the Federal Reserve's "QE4-EVER" kicked in and since the beginning of 2013 it moved up nearly 40% to the May 8 high of $14.27. As you'll notice above, sales growth and rising revenue have helped propel the stock, and if it meets or beats expectations on May 22 it may rise still higher.

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The last quarter ending Feb. 2 saw revenue rise 3% to $24.38 billion (TTM) but earnings per share collapsed by almost 73%. There were some extenuating circumstances that I won't go into but the bottom line is that customers need to show up in bigger numbers and spend more.

The company's leadership had guided for flat to negative growth in both EPS and revenue for the coming quarter and year. Analysts expect about a 10% decline in EPS for the current quarter and an almost 3% decline in sales growth and revenue. Any negative earnings surprises would likely hurt the stock's price. If SPLS surprises to the upside look for a possible rally.

The saving grace for SPLS shares is the dividend, currently offering a yield-to-price of 3.4%. Chairman of the Board and CEO Ron Sargent, in the 2012 annual report, stated Staples is committed to returning excess capital to shareholders. In 2012 the company returned $743 million in dividends and stock repurchases.

To gain a clearer understanding of the challenges SPLS faces and how it plans to meet those challenges I encourage you to visit the Investor Relations page of its Web site.

In reading Sargent's annual letter he spells out four specific strategies and "...changes to accelerate growth, reshape our business, and better meet the needs of our customers." He spells them out in detail in the annual report.

Staple's customer base is one of its biggest advantages. SPLS claims to have 10 million business customers who trust the Staples brand. Sargent is overseeing a "rigorous cost reduction analysis" that includes a plan to achieve $250 million in annual pre-tax savings by 2015.

SPLS is a world-class company that is the world's largest office products company and second-largest internet retailer. That's why I call it "The Queen of the Office Products Business," with dominating operations throughout North and South America, Europe, Asia, Australia and New Zealand. The company is headquartered outside Boston and has been in business for over 26 years.

With its well-organized retail, online and delivery capabilities, Staples can offer office supplies, technology products and services, facilities and break-room supplies, furniture, copy and print services and a wide range of other product categories.

To keep its customer base loyal and smiling it provides next-day delivery to 98% of North America. Most important, it has healthy cash flow that, as of the last quarter, included a trailing 12-month operating cash flow of $1.22 billion.

Its next "day of reckoning" will occur before the markets open on May 22 and we'll learn the details of its most recent quarter. Listen carefully for words of commitment to sustain its dividend and the implementation of new concepts to boost sales growth and EPS.

By the way CEO and Chairman Sargent has invested his money where his heart is. As of March 8, 2013, he owned 735,624 shares of SPLS worth more than $10,350,229. FMR (aka Fidelity Investments) owns 6.56% of the outstanding shares representing an investment of over one-half billion dollars.

So if and when you choose to invest in SPLS you'll be on the same side of the table as management and its biggest institutional investors. If it continues its dedication to shareholder satisfaction by returning a generous part of excess capital in the form of dividends and stock buybacks I'll be an investor, too.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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