Why Staples Shares Sank

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

Interested in more info on Staples? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Staples and Amazon. Motley Fool newsletter services have recommended buying shares of Staples and Amazon. Try any of our Foolish newsletter services free for 30 days.

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Read/Post Comments (2) | Recommend This Article (2)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 15, 2012, at 12:31 PM, jimcarrington wrote:

    any comment on all of staples' websites going down after the earnings release?

  • Report this Comment On August 15, 2012, at 3:51 PM, sharpx2 wrote:

    Staples is not the most shining example of advice from fool.com . . . it has gone nowhere but down over the last six months, yet it holds a very high CAPS rating on the site and has received praise from Fool writers. Granted, not all writers and CAPS participants agree on everything, but this has been a really lousy call. I am not sure what anybody sees in the latest statement from management that would indicate an imminent turnaround. I'm just going to hold my modest stake and see what happens, but I don't have the greatest feeling about the future for Staples.

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