NEW YORK (TheStreet) - Staples (SPLS) shares surged nearly 10% on Wednesday following the office supplies chain's report that its cost-savings strategy is starting to take hold from shuttering stores and ratcheting in expenses.
The Framingham, Mass.-based company shaved more than $200 million of expenses this year as part of its two-year plan to eliminate at least $500 million in annual expenses, according to its latest quarterly earnings statement. It also generated more than $700 million in free cash flow this year and expects that figure to rise above $800 million by year end - above its initial free cash flow guidance of $600 million, it said.
Staples plans to close additional 43 stores this year, having shuttered 127 to date. For the fourth quarter, Staples expects to earn between 27 cents and 32 cents a share, with sales down from last year.
For the Nov. 1-ending quarter, the company reported earnings of $217 million, or 34 cents a share, from continuing operations, compared to $220 million, or 34 cents a share, a year earlier. Excluding one-time items, the company reported non-GAAP net income of $236 million, or 37 cents a share, from continuing operations. Consensus estimates pegged Staples quarterly profit at 36 cents a share. Total sales declined 2.5% to $5.96 billion, the company said.
Shares were gaining 9.5% to $13.97 at last check. Here's what analysts said.
Anthony C. Chukumba, BB&T Capital Markets (Hold)
We saw several encouraging signs in Staples' Q3'14 results, including sequential top-line improvement (albeit adjusted for store closures and foreign exchange rate changes); improved NA Commercial and International profit margin trends; and the increased free cash flow guidance. All that said, we do not think Staples is "out of the woods" yet by any stretch of the imagination, especially considering the fact top-line growth (particularly in NA Retail) continues to be a challenge and profitability remains under pressure. Thus, we are maintaining our Hold rating.