Staples cuts outlook after weak Q1; shares tumble

By @ibtimes on

Staples Inc reported lower-than-expected quarterly results on higher costs and weak demand for office supplies, prompting the top U.S. office supply chain to slash its full-year outlook.

The news, which sent Staples shares down more than 15 percent on Wednesday, came less than a month after smaller rivals Office Depot Inc and OfficeMax Inc posted weak quarterly sales as corporate customers and shoppers spent less on office supplies.

Some analysts have raised concerns that improvements in the U.S. economy were not trickling down to a sector traditionally seen as a barometer of economic health.

Staples now expects full-year net earnings of $1.35 to $1.45 a share, down from its prior view of $1.50 to $1.60.

The company, which said it expected very little improvement in the economy this year, is less optimistic about sales as well. It forecast growth at a low single-digit percentage rate, compared with its prior outlook for an increase in the low to mid-single digits.

Some analysts say the office supply sector is becoming less relevant, with businesses and shoppers buying office supplies from online retailers such as Amazon.com Inc or independent chains.

Nomura analyst Aram Rubinson downgraded Staples earlier this month, despite his belief that the chain is run by some of the best retail executives around.

Though we think Staples is a far better operator, we believe that the issues facing Office Depot and OfficeMax are not expressly cyclical or company-specific, Rubinson said at the time. Rather, the office sector is fighting a secular battle for relevance.

Staples said its net profit rose to $198.2 million, or 28 cents a share, in the first quarter ended on April 30 from $188.8 million, or 26 cents a share, a year earlier.

Analysts on average were expecting 32 cents a share, according to Thomson Reuters I/B/E/S.

Sales rose 2 percent to $6.17 billion, missing the analysts' average estimate of $6.20 billion.

We are gaining share in North America, but at a cost to our bottom line, Staples Chief Executive Officer Ron Sargent said.

Shares of Staples were down 15.5 percent at $16.60 in premarket trading.

(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn and John Wallace)

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