August 15, 2012
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of office supply chain Staples (Nasdaq: SPLS ) plunged 15% today after its quarterly results and outlook came in well below Wall Street expectations.
So what: Office supply chain results are often viewed as a gauge of economic health, so Staples' wide second-quarter miss -- EPS of just $0.18 versus the consensus of $0.22 -- combined with downbeat guidance for the full year, is triggering concerns over deteriorating global demand. The disappointing report also reinforces fears about increased competition from the likes of Wal-Mart and Amazon.com, as well as weak employment rates in the U.S., giving less patient investors plenty of reasons to run.
Now what: Management now expects full-year-earnings growth in the low-single-digit-percentage range -- versus a prior view of high single-digit growth -- on flat year-over-year sales. "We're taking a hard look at each of our businesses, and we plan to make significant changes to improve results," Chairman and CEO Ron Sargent said. "We're also building a plan to reallocate resources, take advantage of our best growth opportunities, and drive increased cost savings." When you couple Staples' still-dominant position in the office supply space with its paltry P/E of seven, buying into that turnaround talk might not be a bad play.
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