Staples to shut 225 stores in North America as sales fall

Thu Mar 6, 2014 11:31am EST

The sign outside of the Staples store is pictured in Broomfield, Colorado August 17, 2011 as the back-to-school shopping season begins. REUTERS/Rick Wilking

The sign outside of the Staples store is pictured in Broomfield, Colorado August 17, 2011 as the back-to-school shopping season begins.

Credit: Reuters/Rick Wilking

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(Reuters) - Staples Inc (SPLS.O) said it would close up to 225 stores in the United States and Canada - 12 percent of its North America outlets - and forecast another quarter of sales decline as it loses customers to mass market chains and e-retailers.

Shares of the largest U.S. office supplies retailer fell as much as 17 percent after the company also reported weaker-than-expected fourth-quarter results and forecast a profit for the current quarter that fell far below analysts' estimates.

Staples has 1,846 stores in the United States and Canada.

"Our customers are using less office supplies, they're shopping less often in our stores and more online, and their focus on value has made the marketplace even more competitive," Chief Executive Ronald Sargent said on a post-earnings call.

Staples said it had initiated a multi-year cost reduction plan that was expected to generate annualized pretax cost savings of about $500 million by 2015.

Analysts said the store closures, which would take place by 2015, were unlikely to boost the company's results in the near term.

"The company had years to close and shrink the store base and stuck to its guns, and that decision is likely to impact them for the foreseeable future. This is too little, too late," Janney Capital Markets analysts wrote in a note to clients.

The brokerage cut its rating on Staples' stock to "neutral" from "buy."

Staples and rival Office Depot Inc ODP.N have been struggling to keep shoppers from turning to mass market merchants such as Wal-Mart Stores Inc (WMT.N) and online retailers like Amazon.com Inc (AMZN.O).

Office Depot, which reported a surprise quarterly loss last week, said it expected sales to continue to fall in 2014.

"Staples' disappointing fourth-quarter performance further highlights the ongoing secular and cyclical challenges facing the office supply retailing industry," BB&T Capital Markets analyst Anthony Chukumba wrote in a note to clients.

NEW ITEMS

Staples has been shifting its focus to new categories such as business technologies, breakroom supplies, and copy and print services from traditional office supplies like paper and toner.

The company said on Thursday that it would refresh about 20 percent of the products in its stores, adding new items in categories beyond office supplies.

In North America, the company will add eight new categories including maintenance repair and operations items, storage solutions and retail supplies for small businesses.

Staples said it would add about 1,600 items in categories beyond office supplies and remove about 1,000, beginning mid-March.

The company had earlier increased and diversified the items it sold on its website.

Sargent was upbeat about Staples' online sales, which rose 10 percent in the fourth quarter due to higher traffic and strong technology product sales in the holiday shopping season.

Staples forecast earnings of 17-22 cents per share for the first quarter. Analysts on average were expecting 27 cents, according to Thomson Reuters I/B/E/S.

SALES SLUMP

Staples' sales dropped 10.6 percent to $5.87 billion in the quarter ended February 1, marking the fourth straight quarter of decline. Analysts on average had expected $5.97 billion.

Excluding the impact of an extra week in the year-earlier quarter, total sales declined 4 percent.

Same-store sales in North America, excluding sales through Staples.com, fell 7 percent as Staples sold fewer business machines, technology accessories, office supplies and computers.

Staples gets 27.5 percent of its revenue from core office supplies and 20.2 percent from ink and toners.

Sales at the company's international division fell 13 percent, hurt by weakness in Europe and Australia.

Net income from continuing operations rose to $212 million, or 33 cents per share, from $90 million, or 14 cents per share, a year earlier.

The company earned 33 cents per share from continuing operations, excluding items. Analysts on average had expected 39 cents per share.

Staples' shares were down 15.2 percent at $11.37 on the Nasdaq in late morning trading, while Office Depot's stock was down 3.7 percent at $4.73 on the New York Stock Exchange.

Staples' stock was trading at 10.41 times forward earnings as of Wednesday's close, while Office Depot was trading at 32.64 times.

(Editing by Kirti Pandey)