Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Staples (SPLS) were getting ripped apart today, falling as much as 14% after the company posted an underwhelming first-quarter earnings report.
So what: With consumers shifting toward online retail and the office retailer's core products becoming obsolete, Staples has continued to shrink. In the past quarter, sales fell 2.8% to $5.65 billion, and comparable sales dropped 4% in North American stores. Those declines were magnified on the bottom line as its adjusted per-share profit dipped from $0.26 to $0.18, missing estimates of $0.21, and overall operating income dropped 45%. Remarking on the quarter, CEO Ron Sargent said the company was continuing to "reinvent" itself, adding, "Despite a slow start to the first quarter, our results were in line with our expectations and we expect to build momentum throughout 2014."
Now what: Looking forward, Staple's prospects seem even dimmer, as it expects adjusted EPS of just $0.09-$0.14 in the current quarter, below estimates of $0.15, and forecast an unspecified sales decline. That projection does not include costs associated with restructuring, which are expected to be $105 million-$155 million and would lead to a loss in the quarter. While Staples saw some positive results in the first quarter including 6% online sales growth and 1% sales growth in its business-to-business segment, the challenges ahead of it may be too difficult to overcome. I'd expect the stock to continue to fall unless the company can find a way to grow revenue and stabilize profits again.
