Staples Goes to China?

While the fickle investing public's waning appetite for all things China may remain soured after recent results from Sohu.com (Nasdaq: SOHU) and Linktone (Nasdaq: LTON), there's plenty of enthusiasm for U.S. companies that make plans for entering the world's most populous neo-capitalist economy. A few weeks back, it was Home Depot (NYSE: HD).

Yesterday, it was popular pen 'n' paper pusher Staples (Nasdaq: SPLS), whose third-quarter earnings release hinted at a future in China. But before we get to that interesting stuff, let's be a little boring with the numbers.

Revenues climbed 9% to $3.1 billion. Comps were up 4%, and the North American delivery business outpaced the crowd with growth of 11%. The bottom line swelled 39% to $122 million, while earnings for the little guy came through 33% better than last year at $0.24 per share. The improvements were made the old-fashioned way, via increases in gross margin and slimming down on operating expenses.

Now, for the sizzle. The passage to China comes in the form of a joint venture with a Chinese Internet and catalog delivery business called OA365. Remember how the delivery biz outran the rest of Staples' segments this quarter? If the firm can eke out the same kind of growth in China, it could provide a great boost to the top line without the drain of setting up superstores (which can come after the Chinese buy all those cars). Oh, and by the way, the firm is also acquiring catalog businesses in Denmark and Austria that should add 25 million euros to the top line.

Staples' solid execution led management to increase its full year earnings forecast to 24% for the year, and it expects free cash flow of $600 million. With shares near the 52-week high, the boardroom's guess would put the company at a forward-looking enterprise value-to-free cash flow ratio of 20, a bit cheaper than the market as a whole, but no screaming bargain. Still, with more growth on the eastern and far eastern horizon, Staples may just continue to deliver for shareholders in the coming years.

For more Foolishness on China:

• Why the weeping at Sohu.com?
• Are the Chinese ready for home improvement?
• Who's driving GM's (NYSE: GM) Chinese Cadillacs?

Seth Jayson recently did his part to help Staples by purchasing a fine, cut-rate office chair, but he has no position in any company mentioned. View his Fool profile here.