Staples to Shut 225 Stores in North America as Sales Fall
By Maria Ajit Thomas | Mar 06, 2014 02:21 PM EST
Staples Inc (SPLS.O), the largest U.S. office supplies retailer, forecasted another quarter of sales decline as it loses customers to mass market chains and e-retailers, and the company said it would close up to 225 stores in North America by 2015.
Staples' shares fell as much as 13 percent in early trading, after the company also forecasted current-quarter profit below analysts' estimates and posted weaker-than-expected fourth-quarter results. The closures represent up to 12 percent of the company's 1,846 stores in the United States and Canada. "Our customers are using less office supplies, they're shopping less often in our stores and more online, and their focus on value has made the marketplace even more competitive," Chief Executive Ronald Sargent said on a post-earnings call.
Staples said it initiated a multi-year cost reduction plan that was expected to generate annualized pretax cost savings of about $500 million by 2015. The company and rival Office Depot Inc (ODP.N) have been struggling to keep shoppers from turning to mass market merchants such as Wal-Mart Stores Inc (WMT.N) and online retailers like Amazon.com Inc (AMZN.O). Office Depot said last week it expected sales to continue falling in 2014, after reporting a surprise quarterly loss.
"Staples' disappointing fourth-quarter performance further highlights the ongoing secular and cyclical challenges facing the office supply retailing industry," BB&T Capital Markets analyst Anthony Chukumba wrote in a note to clients.
Staples has been shifting its focus to new categories such as business technologies, breakroom supplies, and copy and print services from traditional office supplies like paper and toner. The company has also increased and diversified the items it sells on its website. CEO Sargent was upbeat about Staples' online sales, which rose 10 percent in the fourth quarter due to higher traffic and strong technology products sales in the holiday shopping season. Staples forecast earnings of 17-22 cents per share for the first quarter. Analysts on average were expecting 27 cents per share, according to Thomson Reuters I/B/E/S.
RESULTS DISAPPOINT
Staples' sales dropped 10.6 percent to $5.87 billion in the quarter ended February 1, marking the fourth straight quarter of decline. Analysts on average expected $5.97 billion.
Excluding the impact of an extra week in the year-earlier quarter, total sales declined 4 percent. Same-store sales in North America, excluding sales through Staples.com, fell 7 percent as Staples sold fewer business machines, technology accessories, office supplies, and computers. Sales at the company's international division fell 13 percent, hurt by weakness in Europe and Australia.
Staples gets 27.5 percent of its revenue from core office supplies and 20.2 percent from ink and toners.
Net income from continuing operations rose to $212 million, or 33 cents per share, from $90 million, or 14 cents per share, a year earlier. The company earned 33 cents per share from continuing operations, excluding items. Analysts on average expected 39 cents per share. Staples' shares were down 12.7 percent at $11.70 on the Nasdaq, while Office Depot's stock fell 6.2 percent to $4.60 on the New York Stock Exchange. Staples' stock is trading at 10.41 times forward earnings, while Office Depot is trading at 32.64 times.
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