Staples Earnings: Better Than Expected

Staples beat analyst estimates and showed accelerating growth both online and in its commercial business.

Aug 20, 2014 at 2:05PM

Office supply company Staples (NASDAQ:SPLS) beat analyst estimates when it reported its second-quarter earnings Wednesday morning, with weak performance at its retail stores being partially offset by growth in both its commercial and online segments. While Staples still has plenty of work to do to combat falling margins, the company is performing far better than rival Office Depot, and its second-quarter results show significant progress in a few key areas.

Earnings rundown

Staples managed to beat analyst estimates for both revenue and EPS during the second quarter:


Average Analyst Estimate

Actual Result





$5.16 billion

$5.22 billion 

Total sales fell by 1.8% year over year, to $5.2 billion, an improvement over the 2.8% decline during the first quarter. Operating income collapsed, but backing out the effects of various one-time charges, Staples produced $120 million in operating income, a 2.3% operating margin. This is down from 3.5% during the second quarter of 2013.

Comparable-store sales declined by 5%, an acceleration from the 4% decline during the first quarter and  worse than the 3% decline reported by competitor Office Depot during its second quarter. Staples closed 80 stores during the quarter as part of its plan to close 140 this year.

While the retail operation performed poorly, online sales on jumped by 8% year over year, an improvement over the 6% growth during the first quarter. This has been driven by Staples expanding its product assortment beyond core office supplies, although the online channel tends to carry lower margins.

The North American commercial business, through which Staples sells directly to businesses, grew by 2.6% during the quarter, with operating margin from the segment staying roughly steady at 6.5%. The commercial segment includes two websites targeting different business customers: Staples Advantage for organizations of 20 or more employees, and for smaller businesses.  Commercial has been a bright spot for Staples as its stores have underperformed, and the second quarter marks an acceleration over the 0.7% growth during the first quarter. In contrast, Office Depot's business solutions segment declined by 1% during the second quarter, producing an operating margin of just 4%.

The international division declined by 3.9% year over year, with the company recording an operating loss of $25 million for the segment. International operations made up about 18.5% of total sales during the quarter, so while the division is the least important for Staples, the constant operating losses are a drain on the company's profits.

Priorities are in the right place

Staples is mostly a business-oriented company, with about 80% of its sales going to businesses of all sizes, either through its retail stores, its commercial business, or its website. While the retail stores are performing poorly, the other parts of Staples' business are doing fine, and the strength of the commercial segment suggests that businesses still see value in doing business with Staples.

Staples plans to close a total of about 225 stores over the next couple of years. Along with roughly 400 store closings expected from Office Depot, this reduction in store count should lead to better profitability for existing stores as sales are consolidated. This will take time, and the retail operation has so far only gotten worse, but it's still a profitable business for Staples. The same can't be said for Office Depot, which posted an operating loss of $6 million for its retail division during the second quarter.

The focus on online sales also gives Staples a key advantage over Office Depot. While Staples derives about 50% of its revenue from online sales, either through or its commercial segment, Office Depot doesn't even mention the online channel in its earnings report. As the office supply industry evolves, a strong e-commerce operation is becoming critical in competing against online-only rivals like, as well as other big-box stores like Wal-Mart

Final thoughts

While comparable-store sales collapsed during the quarter for Staples, the all-important commercial segment grew faster than it did during the first quarter, and online sales surged. The retail stores need work, but store closings over the next couple of years should act to boost margins. Staples' results were better than expected, and with the company still expecting to produce $600 million in free cash flow during the year, the company is doing a lot better than its floundering stock price suggests.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Timothy Green owns shares of Staples. The Motley Fool recommends The Motley Fool owns shares of and Staples. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers