Retail stocks can be a lot like the merchandise and the sales of the companies they represent -- in constant fluctuation. In this column, I like to point out a few notable daily moves from the big retail stocks, and help investors figure out whether they should buy, sell, or hold. Today's movers and shakers: Staples (NASDAQ:SPLS), Office Depot (NASDAQ:ODP), and RadioShack (NYSE: RSH).
Shares of Staples lost 15.3% of their value today after the company reported quarterly earnings. The company stated that sales had fallen10.6% when compared to a year ago, to hit $5.9 billion. On the surface, earnings didn't look as bad, because the company made $0.33 per share as opposed to just $0.14 a year ago. The problem, however, was that last year, Staples took a number of large one-time charges, which pushed earnings down to that level.
Management went further to say that now nearly half the company's sales come from online; therefore, they will close 225 stores in North America, which is roughly 12% of the company's current locations. Management believes that closing the locations will help save the company $500 million in costs by the end of 2015. Lastly, management forecasted that it would post earnings for the current quarter within a range of $0.17 to $0.22 per share, which really is not close to the $0.27 analysts believed it would post, or the $0.26 the company reported for this quarter in 2013.
Staples' closest competitor, Office Depot, also had a bad day today as the stock lost 5.7%. The move was likely directly related to Staples' decline. While in most cases, I would warn investors to ignore this type of move, in this case, I'm telling investors they should be paying attention. The issue at hand with both Staples and Office Depot is the one thing that is helping them stay alive today, but will likely end both companies as we know them: the Internet.
It's a very scary thing for an investor to hear that half of any company's revenue is now coming from the Internet, when, just a few years ago, their Internet presence was non-existent. Also, there are other competitors out there that operate on the Internet much more efficiently. The office supply industry is one that is selling a highly commoditized good that can be had from a number of different retailers, similar to say the electronics industry. Due to the nature of the goods and services being sold, the only real way for a business to differentiate itself now is by price, a battle that Office Depot and Staples will not likely win when the competition is Wal-Mart, Target, and Amazon.com. With that being said, investors should prepare to ride some rough waves in the coming years if they plan to own shares of either Staples or Office Depot.
Lastly, shares of also-struggling RadioShack dropped 5.56% today. The company recently announced that it would be closing stores -- 1,100 in the coming months -- as management attempts to turn the company's financials around and reduce costs. But today's share-price decline came after Goldman Sachs reduced its price target on the stock from $2.25 to $1. The change comes because Goldman believes the likelihood of a default within the next three years is higher than it was in the past. Also, the company announced that it would be closing stores when it released earnings on Tuesday, which by the way were not good. Goldman Sachs has a sell rating on the stock, and I believe investors should be doing just that -- selling RadioShack.