(Adds details on margins and sales; updates shares)
By Siddharth Cavale
May 20 Staples Inc forecast a fall in
sales in the current quarter as customers shift to e-retailers,
mass merchants and drugstores to buy their office supplies, and
the company reported its weakest quarterly gross margins since
Shares of the largest U.S. office supply retailer fell as
much as 13 percent on Tuesday, after the company also reported
its fifth straight decline in quarterly sales.
Staples has been stocking more electronics such as tablets
and offering copy and print services as demand wanes for
traditional office supplies such as paper and printer toner.
Facing competition from mass merchants such as Wal-Mart
Stores Inc and online retailers such as Amazon.com Inc
, Staples has been spending more on its online business
and on advertising to create awareness that it sells more than
traditional office supplies.
The increased investment, along with mark-downs to clear
inventory, pushed down gross margins in the first quarter to
24.94 percent from 25.98 percent a year earlier.
The company said it expected stepped-up investments in
e-commerce and marketing to continue to weigh on profit in the
Staples forecast earnings of 9-14 cents per share for the
quarter ending Aug. 3, falling short of the average analyst
forecast of 15 cents per share.
The company said store closures and weak demand would result
in a decline in sales in the current quarter, compared with a
year earlier, but did to provide a figure. Staples reported
sales of $5.32 billion in the second quarter of 2013.
Analysts are expecting second-quarter sales of $5.18
billion, according to Thomson Reuters I/B/E/S.
Staples said in March it would close 140 of its 1,846 stores
in North America this year to boost profits and focus on its
"We think the company is taking the right steps,
including aggressively closing stores this year ...," Deutsche
Bank Markets Research analyst Mike Baker wrote in a note,
maintaining a "hold" rating on the stock.
First-quarter sales fell nearly 3 percent to $5.65 billion.
North America sales rose just 1 percent as a fall in sales of
core office supplies offset most of the benefit of a rise in
sales of breakroom supplies and furniture.
International sales fell 4 percent.
"While sales were better than expectations, profitability
remains a question mark within the retail business ... " Janney
Capital Markets analyst David Strasser wrote in a note.
Staples' net income fell 44 percent to $96 million, or 15
cents per share. Excluding items, the company earned 18 cents
per share. Analysts on average had expected earnings of 21 cents
per share on sales of $5.61 billion.
Staples shares were down 13 percent at $11.64 in early
afternoon trading on the Nasdaq.
(Reporting by Siddharth Cavale in Bangalore; Editing by Savio
D'Souza, Kirti Pandey and Ted Kerr)