Staples gets marked down on Wall Street

The office supply chain's latest earnings and guidance aren't what investors were looking for. Cutting costs now tops the retailer's agenda.

By Jonathan Berr Mar 6, 2013 12:56PM
People leave a Staples store in Broomfield, Colorado (© Rick Wilking/Newscom/Reuters)Staples (SPLS) shares are slumping in Wednesday trading after the office supply retailer posted disappointing earnings and gave lackluster guidance.

Net income at the Framingham, Mass., company fell 72% to $78.1 million, or 12 cents per share, compared with $283.6 million, or 41 cents per share, a year earlier. Excluding one-time items, profit was 46 cents per share, a penny better than Wall Street expectations. Revenue jumped 3% to $6.57 billion but missed analysts' forecast of $6.72 billion.

North American same-store sales, a key retail metric for stores opened at least a year, fell 5% in the fourth quarter.

Ron Sargent, Staples’ chairman and chief executive officer, spooked analysts with his talk of a "challenging sales environment." But competition will only intensify in the wake of rival Office Depot's (ODP) planned $1.17 billion acquisition of OfficeMax (OMX). Not surprisingly, Staples has been in cost-cutting mode.

It announced plans last year to reduce its North American retail square footage by the end the 2015 fiscal year and is slashing its workforce in Europe, a weak spot where same-store sales plunged 9% in the last quarter. The retailer also is shutting stores.

Wall Street still sees better times ahead for Staples. The average 52-week share price target is $14.06, more than 12% above where the stock recently traded. Staples' fortunes, though, are tied to the overall economy, and many businesses aren't feeling too confident about their financial futures.

--Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.


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