This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Staples Restructuring Is 'Too Late,' Says Analyst

NEW YORK (TheStreet) -- Shares of Staples (SPLS - Get Report) were sinking 11.5% to $11.85 after the office supplies chain reported first-quarter earnings that were worse-than-expected amid a restructuring plan meant to shift focus to e-commerce and more business-to-business products. At least one analyst said the transformation comes "too late."

Staples reported first-quarter net income of $96 million, or 15 cents a share, which fell 43% from the first quarter of 2013. Non-GAAP earnings came in at $115 million, or 18 cents a share, missing analysts' estimates by 3 cents, according to Thomson Reuters. The 3-cent shortfall came from an $11 million tax charge related to the repatriation of foreign earnings as well as a $22 million net gain related to the sale of its Smilemakers business, Staples said.

Revenue of $5.65 billion fell 2.8% from the year-earlier quarter, but exceeded analysts' estimates of $5.61 billion. Staples' gross margin fell 90 basis points from the year-earlier quarter to 25.1%.

Staples' comparable-stores sales in its North American business fell 4% from a decline in traffic and flat average order size, it said, while online sales rose by 6% in local currency driven by "increased conversion on the company's desktop and mobile Web sites as well as its previously-announced expanded assortment of products for small businesses beyond just office supplies." Staples is also focusing on growing its copy and print sales. The company noted in its earnings release that same-store sales for copy and print in North America stores rose in the "high single digits," while online copy and print sales rose in the "double digits."

Staples is battling against the likes of Walmart (WMT), Best Buy (BBY) and Amazon (AMZN) in in the office supply space. Its competitor Office Depot (ODP) said two weeks ago that it plans to shutter 21% of its 1,900 stores by 2016. Office Depot merged with Office Max in November.

Staples announced on March 6 that as part of a company-wide restructuring that it would shutter 225, or roughly 10%, of its store base, the bulk to be closed this year. Staples said on Tuesday during its first-quarter earnings call that it closed 16 stores in the first quarter and plans to close 80 underperforming stores in the second quarter. The company plans to close 40 stores in the back half of the year, it said on Tuesday.

Some analysts aren't convinced the restructuring will work. As an investor, it might be tough to take the blows as the company reforms itself.

"We look upon the weaker-than-expected 1Q (Apr.) results and 2Q (Jul.) guidance that SPLS reported today as 'more of the same' from the struggling chain in an increasingly challenged sector," wrote Oppenheimer analyst Brian Nagel, in a research note. He has a "perform" rating on the stock.

"Staples is working aggressively to adapt its enterprise amid rapidly changing dynamics within the Office Products Retail Category. We are encouraged with SPLS' turnaround efforts, but remain concerned that a strategic repositioning at the chain is simply occurring 'too late.' SPLS continues to generate substantial cash and enjoys a very solid balance sheet. However, we do not foresee any type of significant recovery in sales and EPS trends at the company in the near to intermediate term," the note said.

The company announced on the same day as the restructuring that it had launched the first two of its so-called omnichannel stores.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
SPLS $16.14 -0.34%
AAPL $129.62 -2.20%
FB $79.34 -1.50%
GOOG $532.32 -1.44%
TSLA $247.46 -0.11%

Markets

DOW 18,041.54 -190.48 -1.04%
S&P 500 2,104.20 -21.86 -1.03%
NASDAQ 5,032.7510 -56.6110 -1.11%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs