Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Staples' Increased Focus on E-commerce Means Fewer Stores

By Eileen Rojas - Mar 20, 2014 at 1:23PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Office supply retailer Staples will close several of its locations, as its e-commerce site reports higher growth.

Staples ( SPLS ) is on a quest to reinvent its business, and part of its strategy revolves around closing several dozen of its retail locations. In its latest earnings report, Staples CEO Ron Sargent mentioned that the company generates almost half of its sales online, a sign of the importance of e-commerce to long-term sales growth. The company is also working on reducing costs and improving efficiency.

Staples reported fiscal 2013 fourth quarter EPS of $0.33, which missed market estimates by $0.06. While the company met earnings estimates during the third quarter, lower earnings than expected were noted in the first, second, and fourth quarters of fiscal 2013, marking somewhat of a trend. Despite total sales dropping almost 11%, the more conservative GAAP diluted EPS figure grew 136% from $0.14 in the fourth quarter of 2012 to $0.33 in 2013's fourth quarter. Other GAAP figures show improvements from 2012 to 2013, a sign that the business is improving.   

While total sales for Staples decreased, recorded 10% higher sales during the fourth quarter. The company also significantly increased its product selection during the quarter and changed its selling model to move the business beyond its bread-and-butter office supply product lines. Staples was able to reduce costs during 2013 and achieve profitability for the year in Europe.

Part of the reason for the negative sales growth was the closure of 63 stores during the 12 months prior to the fourth quarter of 2013. The company also reported that more store closures are coming: 225 North American stores will close their doors by 2015. A cost reduction program expected to yield $500 million in savings has been set in place. Lower comp store sales, which exclude sales in, reflected lower traffic and smaller average orders compared to the prior period. Diluted EPS for the first quarter of 2014 is estimated to range between $0.17 and $0.22 .

Rival Office Depot completes merger with OfficeMax
The earning report sent Staples' shares sliding 15% to $11.35. Rival office supply chain Office Depot ( ODP -1.64% ) was also affected; its share dropped 5.7% to $4.63. In its full-year 2013 earnings report, the company discussed the completion of the merger with OfficeMax; the reorganization was completed in February. The combined company is expected to bring in cost synergies of more than $600 million by year-end 2016. Similar to Staples, Office Depot is focusing on streamlining its operations and improving profitability and return on invested capital.

As Office Depot and Office Max integrate their companies, there's were some store closures but not at the level of its rival Staples. During the fourth quarter, 16 Office Depot locations and seven OfficeMax stores were closed. The company ended 2013 with 1,912 stores in North America; 1,089 Office Depot stores and 823 Office Max stores .

E-commerce key to long-term growth
In late December, Office Depot was looking for a new executive to head e-commerce. According to Internet Retailer, Office Depot's 2012 web sales were $7.26 billion and trailed Staples, which reported $10.3 billion in online sales. As Office Depot builds up its online presence, Staples is way ahead of its rival. Mention has been made on providing customers with "multichannel options," but its unclear what Office Depot's online strategy will be. The recent merger and the resulting economies of scale could help the company carve out an online strategy.

Meanwhile, Staples' success in e-commerce also means providing customer service that is up to par with the likes of ( AMZN -0.00% ) and its many customer friendly services such as Amazon Prime memberships and Sunday package deliveries . Staples played a price matching game with Amazon during the holidays, so it's serious about competing with the online giant.

Staples' combination of e-commerce site and physical stores may be attractive to customers who may prefer picking up orders at their local store. While Amazon sells everything under the sun, Staples focus on the needs of business customers can work to its advantage. As far as investors are concerned, Staples has a more reasonable valuation than and similar 5-year PEG ratio as Amazon:



Market cap.

7.59 billion

 170.17 billion

EPS (ttm)



P/E (ttm)



PEG (5-year expected)



Source: Yahoo Finance

My Foolish conclusion
Staples seems to be making a smart move by redirecting its focus to its thriving e-commerce business. Close rival Office Depot must play catch up or risk losing business to retailers with a more established online presence. While Staples' shares are down about 25% since the start of the year, its decision to close several of its stores should improve the company's cost structure and efficiency. Its switch to smaller stores and expansion of its online product offerings for business customers may prove to be a winning combination for the retailer. 

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned, Inc. Stock Quote, Inc.
$3,523.16 (-0.00%) $0.13
The ODP Corporation Stock Quote
The ODP Corporation
$38.90 (-1.64%) $0.65
Staples, Inc. Stock Quote
Staples, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/09/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.