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Staples Restructuring Is 'Too Late,' Says Analyst

The stores, located in Norwood, Mass., and Dover, Del., "incorporate and Staples' mobile assets into the retail experience, letting customers shop how they want," the retailer said at the time. "We listened to our customers and provided the products, services and features they need to succeed".

"The stores feature several new kiosks, providing customers with access to more items than ever, as Staples continues to drive towards its vision of providing every product businesses need to succeed. Through the kiosks, customers can select from more than 100,000 items, including the latest tech products, furniture, school supplies, and cleaning and break room items. And, offers free, next business day delivery to more than 98 percent of North America. When they're done shopping, customers can either complete their transactions at the kiosk or the store register."

The omnichannel stores also feature consultation areas for small-business customers who need tech or professional printing assistance as well as meeting spaces and work stations for mobile professionals, among other things.

Deutsche Bank analyst Mike Baker said it is still early in the restructuring to come to a conclusion. "SPLS indicated that they had secured $100mm in cost savings this quarter against its $500mm two year plan," according to a note this morning. "But, we believe it's too early to see the flow through from that, as SG&A before charges was up $20mm. There is also some reinvestment going on. We think the company is talking the right steps, including aggressively closing stores this year, 80 of which will close next quarter. We maintain our Hold rating as they work through their improvement initiatives."

Asked when Staples expected to see a return to historical margins, Ron Sargent, Staples chairman and CEO, answered: "When you're trying to take a company the size of Staples ... [with a] strong retail legacy moving it in online there's going to be a lot of changes and hard to predict when to get back to historical margins ... But I can tell you were making a lot of progress internally." sales are growing "nicely again," he said, and the company's assortment expansion "seems to be paying dividends." Sargent added that Staples' re-launched branding efforts have been well received. Additionally, sales through Staples' kiosks are the fastest growing part of the business. The company is also placing emphasis on digital print and copy.

"The business has changed a lot," Sargent said. "We're going to be selling a lot less paper-based office supplies in the future" as the mix switches to a greater percentage of digital-based products, which are lower-margin products.

As the company continues its transition, it expects sales in the second quarter to fall from last year, with non-GAAP earnings in the range of 9 cents to 14 cents a share. Analysts were looking for second-quarter earnings of 15 cents a share.

-- Written by Laurie Kulikowski in New York.

>>Read More:

How PizzaRev Plans To Be the 'Chipotle of Pizza'

Why JCP's Online Strategy Is Not That Bad

Mobile Commerce Expected to Surpass $100B in 2014. But Are Retailers Ready?

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