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TheStreet Open House

Hurt By Amazon, Staples Is Near Death

Stock quotes in this article: SPLS

Updated from 9:24 a.m. to include information about the dividend in the ninth paragraph.

NEW YORK (TheStreet) - Staples (SPLS) shares were plunging 12.5% to $11.72 in early morning trading following news that the office supply chain missed fourth-quarter earnings and sales estimates and plans to close 10.5% of its store base over the next two years as it cuts expenses and focuses more on online sales.

The Framingham, Mass.-based company reported on Thursday a quarterly profit from continuing operations of $212.4 million, or 33 cents a share, compared to 90 million, or 14 cents a share, in the year-earlier quarter. Consensus was calling for earnings of 39 cents a share.

Sales for the final quarter of 2013 dropped 10% to $5.87 billion. Online sales, however, rose 10% in the quarter, Staples said. Analysts had expected the company to post sales of $5.97 billion for the quarter.

In North America, sales dropped 12.1% to $2.9 billion, with comparable store sales, which excludes online sales, down 7% in the quarter, primarily due to lower store traffic and smaller average ticket sizes.

At the beginning of 2013, Staples announced a plan to restructure the company to reduce costs and improve efficiency, mainly by focusing on its e-commerce platform. In 2013, Staples closed 42 stores in the U.S. and Canada (it opened two new stores), leaving it with a base of 1,846 stores in North America. Staples also has 282 stores in Europe.

With roughly half of its sales currently generated online, Staples is looking to close more stores - 225 in North America - by the end of 2015, it said Thursday.

The store closures coincide with a multi-year cost savings plan it announced in conjunction with earnings on Thursday. Staples plans to reduce expenses by approximately $500 million before taxes on an annualized basis by the end of 2015.

The savings are expected to come from supply chain, retail store closures and labor optimization, non-product related costs, IT hardware and services, marketing, sales force, and customer service, it said.

Despite the store closures, Staples board continued its dividend policy. On Thursday, Staples board declared its quarterly dividend of 12 cents per share. The dividend is payable on April 17, 2014, to shareholders of record on March 28, 2014.

Staples said that it expects sales in the first quarter to decline versus last year's quarter. It forecast diluted earnings per share between 17 cents and 22 cents for the April-ending quarter.

Analysts, according to Thomson Reuters, expected the company to earn 27 cents for the first quarter.

Staples is not the only company looking to cut costs as consumers purchase more goods online through Amazon (AMZN), leaving retailers saddled with large commercial square footage, too much inventory and not enough foot traffic. Best Buy (BBY), J.C. Penney (JCP) even Macy's (M) are all looking to shave expenses through store closures.

--Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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