Yaaawn. Much like college students adjusting to the first days back on campus, investors didn't seem too excited about yesterday's second-quarter earnings release from Staples (NASDAQ:SPLS). And no wonder. Its earnings growth was decent, but just as predicted, and its projections for the remainder of the year hardly inspire adulation. However, I see a few reasons for investors to be excited about Staples' long-term prospects.
The office-supply retailer reported a gain in net profit of 11%, to $178.8 million or $0.25 per share. Sales were up 10.6% to $4.3 billion, boosted by robust laptop sales and international expansion, but weighed down by weak furniture sales. Its international business has been one of the company's true bright spots, where same-store sales advanced 7%. Contrast that with its home market, where Staples suffered a 2% slide in comps.
While the numbers were fair, management certainly didn't do anything to evoke investor confidence. Leadership remains concerned about modest consumer spending in the U.S. economy. There's no question that the environment in which Staples operates is challenging. However, I think that's exactly why Staples has an advantage over smaller competitors Office Depot (NYSE:ODP) and OfficeMax (NYSE:OMX).
Staples' sheer size, diverse offerings, and international presence enable it to withstand domestic market slowdowns. When furniture sales are down, laptop sales are up. When U.S. sales slow, international sales pick up the slack. (Staples opened seven new locations in China and will launch retail operations in India later this year.) Staples also has the benefit of its fast-growing delivery business, which includes its website and catalog; this segment delivered a 16% jump in sales.
So, yes, consumers may be acting somewhat more frugally for a little while. However, we all still need our school and office supplies. And let's not forget, Staples is still projecting 15% earnings growth for the full year. That's at the bottom of its previous 15% to 20% range, but the company told us in May that was the case. With a forward P/E of 14, Staples looks reasonably priced. Given that, I'm not ready to stock up on Staples just yet, but it is a company to watch closely and could pick up once market jitters start to subside.
For more on where to go for supplies, read:
Fool contributor Mike Cianciolo welcomes feedback and doesn't own shares of any of the companies in this article. The Fool has a disclosure policy.
