Is Staples' (SPLS) Fate Stapled Shut?
Staples (SPLS), the largest office retailer in the United States, plunged 16% after it reported dismal second quarter earnings that caused investors to question the future of the troubled company. The company reported earnings of $0.16 per share, or $102.5 million, down from the $0.18 per share, or $120.4 million, it reported in the prior year quarter. Revenue declined 2% to $5.31 billion, exacerbated by a big 8% plunge in international sales.
Analysts on average had expected Staples to earn $0.18 per share on revenue of $5.37 billion. Same-store sales dropped 3%. Daily Chart
For the full year, Staples expects its top line to decline at a "low single-digit" percentage, compared to its prior forecast for a "low-single digit" rise in May. Analysts had only expected a year-on-year sales decline of 1%. The company also slashed its full-year earnings outlook from $1.30-$1.35 per share down to $1.21-$1.25 per share, far below the consensus estimate of $1.32. That big miss on the top and bottom lines raised serious concerns about its international business, which has been a consistent drag on its bottom line. During the quarter, poor sales from Europe and Australia resulted in the closure of 49 European stores, where sales declined 6%. On the bright side, Staples has consistently outperformed its primary domestic rivals Office Depot (ODP
) and OfficeMax (OMX
) in the United States. Office Depot and OfficeMax are scheduled to merge later this year. There are also concerns that a decreasing dependence on traditional office products like paper, pens and stationery has taken its toll on all three companies, as an increasing number of consumers opt to use tablets and smartphones instead."Paperless workplaces" are also gaining traction in America, as an economical and eco-friendly way to avoid costly paper waste. In addition, physical office supplies are now more frequently ordered online. According to a survey conducted by Deutsche Bank, Amazon's (AMZN
) average price for office supplies was on average 26% lower than prices offered by Staples, Office Depot and OfficeMax. Amazon's prices for high margin ink and toners was also 36% lower. Staples already has 5% to 7% lower prices than Office Depot and OfficeMax, meaning that there isn't much more room for margin-crushing price reductions in the near future. Although the future looks bleak for Staples, some analysts are still moderately bullish on the stock. BB&T Capital Markets analyst Anthony Chukumba said that Staples' results "while disappointing, were not entirely surprising given the still tepid U.S. macroeconomic environment and even worse conditions internationally." Chukumba believes that Staples' efforts to cut costs and the merger between Office Depot and OfficeMax could help stabilize the company's top and bottom lines. Other News About SPLS It's Not Easy Being Staples
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Published on Aug 29, 2013
By Leo Sun