STAPLES REPORTED lower than expected quarterly results on weak demand in North America, Europe and Australia, prompting the largest US office supply chain to cut its profit and sales forecasts for the year.
Current expectations for the year assume slower growth in the US economy and continued weakness in Europe, Staples said yesterday.
The news pushed Staples shares down as much as 16.8 per cent to their lowest level since 2003.
Many investors look at office supply retailers as a barometer of economic health because demand for their products is closely tied to white-collar employment rates.
“The weakness in Europe was not a surprise, but the deterioration in the US was more significant than anticipated,” said Janney Capital Markets analyst David Strasser. He tied the weakness in Staples’s home turf to the slowdown in the US economy, anemic employment trends and rising competition.
Besides its office supply peers, Staples faces tough competition from mass merchants such as Wal-Mart, drugstores, dollar stores and online retailer Amazon.com.
For the year, Staples said it expected sales to stay flat and earnings per share to rise only at a low single-digit percentage rate from last year’s $1.37. Previously, it had forecast growth in the low single digits for sales and in the high single digits for earnings per share.
The retailer said existing business customers in North America were cutting back their spending on office supplies.
Staples said it was also finding it harder to pass on price increases in items like paper to large corporate and healthcare customers.
Sales fell 5.5 per cent to $5.50 billion in the second quarter, well below the analysts’ average estimate of $5.72 billion. International sales fell 18 per cent to $1.1 billion, hurt by weakness in Europe and poor demand in Australia.
Staples’s results came after Office Depot, the second largest US office supply chain, reported a wider than expected quarterly loss last week on tepid demand in Europe and the US. Third-ranked OfficeMax has said it expects third-quarter sales to be flat or just slightly higher than a year earlier.
Staples’s net income fell to $120.4 million, from $176.4 million a year earlier. – (Reuters)
