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Staples Gets Crushed, Facing Major Headwinds

By Mark Reeth and Brendan Mathews - Mar 7, 2014 at 3:56PM

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Despite Staples' "That Was Easy" slogan, business for the company is becoming very difficult.

Shares of Staples ( SPLS ) fell hard yesterday, after the company announced a very bad quarter. Revenue, margins, and profits all fell for the company, and the company also announced it would be closing 225 stores, which is more than 10% of the company's North American footprint. On Friday's installment of Stock of the Day, Motley Fool analyst Brendan Mathews told host Mark Reeth that he sees two major macro factors hurting Staples today.

First, Brendan points to a secular decline in the demand for office supplies, as an increasingly large percentage of business moves toward being conducted entirely electronically. Second, the company is fighting a war on two fronts against the competition, not only having to ward off traditional brick-and-mortar retailers, but also having to fight against online retailers such as ( AMZN 3.37% ), which has the scale to sell for incredibly low prices, significantly damaging Staples' margins.

Looking at the stock itself, it does look cheap at these levels, and Brendan notes that there are things to like about the company. But he personally can't get past the idea that the company is facing both online competition and a shrinking market, and he's staying away from the stock today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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