Staples, Inc. (NASDAQ:SPLS) delivered Q1 results today that fell short of Wall Street expectations, driving SPLS stock lower in early day trading.
The office-supplies retailer said sales in the first quarter were $4.15 billion, down 4.9% from last year’s comparable period. Analysts had expected the number to reach $4.5 billion. Comp sales were down 2.6%. Net income was $105 million in the period against $60 million last year. Earnings per share at 16 cents were a penny below the forecast average of 17 cents. Last year’s Q1 saw EPS of 9 cents.
Demand for office products (paper-based) has been decreasing due to technological advancements. Smartphones, tablets and laptops are fast emerging as viable substitutes for paper-based office supplies, and there has been persistent weakness in the office products sector.
“2017 is off to a good start and, consistent with our strategy, we drove solid sales growth in the mid-market and improved profitability in North American Retail during the first quarter,” said Shira Goodman, Staples’ CEO, in a press release. “Based on our success growing categories beyond office supplies, we’re intensifying our focus on several key growth categories including facilities supplies, breakroom supplies, furniture, technology solutions, and promotional products, or what we now refer to as ‘Pro Categories’. We’re pursuing this opportunity from a position of strength as we bring together the products, services, and expertise to provide a differentiated offering to business customers of all sizes.”
As InvestorPlace contributor Josh Enomoto noted yesterday, the broader office supplies business is doing very well. The producer price index for supply manufacturers has jumped 4% in the past two years. The issue is on the distribution side. There’s just not enough room for everyone, causing recurring headaches for SPLS stock.
“Big-box retailers like Best Buy Co Inc (NYSE:BBY) or Wal-Mart Stores Inc (NYSE:WMT) will sell office supplies, and everything else. Limiting yourself to just a specific sector is an impossible business. That’s why the Office Depot Inc (NASDAQ:ODP) merger proposal made sense,” Enomoto wrote. A year ago, a federal judge blocked the proposed merger with rival ODP which last week surprised investors with a larger-than-expected Q1 profit.
Since the merger was stopped in its tracks, SPLS stock has gain 11.5% and ODP stock more than 45%, against the broader NASDAQ market index’s 29% advance.