Staples closing 225 stores, strengthens online focus
- Staples has 1%2C846 stores in North America
- Retailer may needs to close more stores%2C analyst says
- Staples expanding product line for businesses
Staples said Thursday it will close 225 stores in North America by the end of 2015 amid falling fourth-quarter revenue as sales increasingly shift online.
The stock closed down $2.05, or 15.3%, to $11.35.
"With nearly half our sales generated online today, we're meeting the changing needs of business customers and taking aggressive action to reduce costs and improve efficiency," Staples CEO Ron Sargent said.
For the fourth quarter ended Feb. 1, total company sales fell 10.6% to $5.9 billion a year ago, the nation's No. 1 office supply chain said. Earnings were $212 million, or 33 cents per share, compared with $78 million, or 14 cents a share in a year-ago period that included substantial one-time charges. Wall Street analysts expected net income of 39 cents a share in the fourth quarter.
The company said it expects per-share earnings in the current quarter of 17 cents to 22 cents, well below analysts' estimates of 27 cents and the 26 cents it earned in the first quarter of 2013.
The store closings will affect about 12% of the company's 1,846 North American outlets — the majority in the U.S. — and are part of a plan to save $500 million in costs by the end of next year.
Like other retailers, Staples' last quarter was hurt by soft consumer demand for electronics and heavy discounting, says analyst Scott Tilghman of B. Riley & Co. Also, its business customers are disproportionately located in the Northeast, which was battered by cold and stormy weather.
Staples is snaring a healthy share of online sales, but must trim its base of stores accordingly, Tilghman says. A similar dynamic has partly contributed to recent store closings by retailers such as RadioShack, J.C. Penney, Sears and others. About 6% of all retail sales are online — a figure that's expected to grow to 10% in three to five years, according to Tilghman and the Commerce Department.
Specialty stores such as Staples are also facing increased competition from department stores such as Walmart and Target, further pressuring per-store profits, Tilghman says.
Staples, meanwhile, also has been hobbled by technological shifts at the office and home, which have sharply reduced the need for bread-and-butter Staples products such as paper, ink and toner, as well as the store's legacy services.
"You don't have people faxing stuff, and you don't have people making huge copies," says Brian Yarbrough, a research analyst with Edward Jones.
The company is responding with an increased emphasis on technology products such as tablets, which may drive traffic but are lower-margin, and open Staples up to more competition from the likes of Walmart and Target, Yarbrough says.
Staples is also expanding to offer new product lines for businesses, including industrial and medical supplies. Staples today said it's adding eight new product categories and 1,600 items to its stores, representing 20% of its offerings. They include breakroom supplies, gifts and cards for office parties and early-education toys and learning aids.
"We think they're taking the right steps," Tilghman says. "It will take a little while before it shows up in the numbers."
But Yarbrough says the chain likely needs to close more stores in the future and make them smaller — the average store is about 23,000 square feet.
"I wouldn't be surprised if there's a couple hundred more that need to be closed," he says. "The problem at the end of the day is every product they sell, you can go on Amazon and buy. And Amazon prices are just cheaper."
Contributing: Hadley Malcolm
