Why Staples, Inc. Stock Folded Today

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 Staples  (NASDAQ: SPLS  ) were getting ripped apart today, falling as much as 14% after the company posted an underwhelming first-quarter earnings report. 

So what: With consumers shifting toward online retail and the office retailer's core products becoming obsolete, Staples has continued to shrink. In the past quarter, sales fell 2.8% to $5.65 billion, and comparable sales dropped 4% in North American stores. Those declines were magnified on the bottom line as its adjusted per-share profit dipped from $0.26 to $0.18, missing estimates of $0.21, and overall operating income dropped 45%. Remarking on the quarter, CEO Ron Sargent said the company was continuing to "reinvent" itself, adding, "Despite a slow start to the first quarter, our results were in line with our expectations and we expect to build momentum throughout 2014."

Now what: Looking forward, Staple's prospects seem even dimmer, as it expects adjusted EPS of just $0.09-$0.14 in the current quarter, below estimates of $0.15, and forecast an unspecified sales decline. That projection does not include costs associated with restructuring, which are expected to be $105 million-$155 million and would lead to a loss in the quarter. While Staples saw some positive results in the first quarter including 6% online sales growth and 1% sales growth in its business-to-business segment, the challenges ahead of it may be too difficult to overcome. I'd expect the stock to continue to fall unless the company can find a way to grow revenue and stabilize profits again.

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Jeremy Bowman

Fool since 2011. I write about consumer goods, the big picture, and whatever else piques my interest. Follow me on Twitter to see my latest articles, and for commentary on hot topics in retail and the broad market.

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Related Tickers

8/28/2015 12:57 PM
SPLS $13.77 Up +0.05 +0.36%
Staples CAPS Rating: **