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Comprehensive Analysis of Profitability and Growth

Comprehensive Analysis of Profitability and Growth. Staples vs. Office Depot Specialty Retail Industry Kicki Astuno ∙ Leah Constan-Tatos ∙ Sophie Yu ∙ Isabella Zhou. Industry and Company snapshot Current stock performance WACC Preliminary valuation Adjustments Adjusted valuation

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Comprehensive Analysis of Profitability and Growth

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  1. Comprehensive Analysis of Profitability and Growth Staples vs. Office Depot Specialty Retail Industry KickiAstuno ∙ Leah Constan-Tatos ∙ Sophie Yu ∙ Isabella Zhou

  2. Industry and Company snapshot • Current stock performance • WACC • Preliminary valuation • Adjustments • Adjusted valuation • Sensitivity Analysis • Comparison between Staples and Office Depot • Recommendation & conclusion Agenda

  3. Includes stores that sell stationery, school and office supplies • “Sub-industries” such as office stationery manufacturers and wholesalers provide goods to office supply stores in the U.S. • Schools, universities and households demand these resources • Products offered by this industry generally constitute normal goods Specialty Retail Industry

  4. Staples – restructuring – likely to boost overall expansion into online markets, hurt profit margin in 2013, yet will reduce industry specific revenue as more stores closed • Office Depot – profit margins, despite being low during recession, are expected to rebound up to 2018 as the company realized cost savings associated with its acquisition of Office Max, its next largest competitor - IBIS World Industry Commentary

  5. The world's leading office products company. • Reach customers through contract, on-line, catalog and retail sales channels that are designed to be convenient • North American Commercial segment consists of the U.S. and Canadian business units that sell and deliver office products and services directly to businesses, including Staples Advantage and Quill.com. • International Operations segment consists of businesses in 23 countries in Europe, Australia, South America and Asia • Reported NI of $620M for FY 2013 Staples

  6. Second largest retailer of office supplies in the U.S. with 35.7% market share • Underwent merger with Office Max 2013 • Headquartered in Boca Raton, FL • Consists of three segments: • North American Retail • North American Business Solutions • International Division • Reported negative NI of $93M for FY 2013 Office Depot

  7. Stock Performance - Staples

  8. Stock Performance – Office Depot

  9. WACC - Staples

  10. WACC – Office Depot

  11. Sales Growth • Staples: -1.38% • Office Depot: -4% • EPM • Staples: 4.6% • Office Depot: 4% • EATO • Staples: 3.08 • Office Depot: 5.8 Preliminary Valuation – Key Assumptions

  12. BUY??? Preliminary Valuation - Staples

  13. BUY??? Preliminary Valuation – Office Depot

  14. Staples Office Depot Adjustments – Operating Leases

  15. Staples Office Depot Adjustments - ESO

  16. BUY Adjusted Valuation - Staples

  17. SELL Adjusted Valuation - Office Depot

  18. Staples Office Depot Sensitivity Analysis

  19. Comparison - Operating

  20. First Level Breakdown RNEA LEV SPREAD Comparison - ROE

  21. ROE Driver Comparison - 2013 Comparison - ROE

  22. SecondLevel Breakdown RNEA Comparison Comparison- ROE

  23. Third Level Breakdown – EPM Drivers Comparison - ROE

  24. Third Level Breakdown – EATO Drivers Comparison - ROE

  25. Decrease in sales • Low EATO • “Buy” even after adj. • Stable in the long-run • Decrease in sales • Low EPM • Adj. are critical • Riskier due to higher leverage Recommendation & Conclusion

  26. Questions?

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