Staples SPLS continued to outperform its direct rivals in the second quarter, despite a still challenging environment for consumer and small-business spending. Although we expect sluggish demand for office supplies over the next several quarters, year-to-date results are tracking ahead of our estimates, and we plan to raise our fair value estimate. We remain convinced that Staples is the office product supplier best positioned to weather economic head winds, and we are optimistic about the firm's long-term margin expansion prospects, especially as Corporate Express is fully integrated.

With North American comparable retail sales improving to negative 5% from negative 8% in the first quarter, there are indications that retail store traffic has modestly improved, especially in territories vacated by other big-box rivals. Although we expect ongoing weakness in big-ticket durable categories over the near term, we have increased our comparable sales projections for the year. We do not anticipate much improvement in the North American delivery segment during the back half of the year, as business customers of all sizes continue to curtail office supply budgets and the firm anniversaries the Corporate Express acquisition. We also believe the international segment will continue to struggle, dragging down top-line growth and profitability. That said, we expect Staples to offset several of these top-line pressures through acquisition synergies, including more favorable vendor terms and system integration efforts. Inventory management, increased private-label penetration, and higher-margin copy and technology support service sales should also be additive to margins.