Staples rises on steady Q1 sales amid strategy pivot

Dive Brief:

  • Staples on Tuesday said that total first quarter sales fell 5% year over year to $4.1 billion, missing analyst expectations cited by The Street for $4.46 billion. The company reported non-GAAP net income from continuing operations in the period was $113 million, or 17 cents per diluted share, meeting expectations. 

  • Same-store sales in the quarter fell 2.6%, where declines in office supplies and ink and toner, were partially offset by growth in facilities supplies, break room supplie, and technology solutions, according to a company press release. That beat FactSet analyst estimates for a 4.1% decline cited by MarketWatch. In North America, same-store sales dropped 6% in the quarter. 

  • The company said it's on track to close approximately 70 stores in North America this year, and it touted the launch of a new brand campaign emphasizing Staples as a “solutions provider for businesses of all sizes.” The company closed 18 stores during the quarter, ending with 1,237 stores in the U.S. and 304 stores in Canada.

Dive Insight:

In her statement Tuesday, Staples CEO Shira Goodman said that 2017 is “off to a good start,” as shares rose 3.5% on the news of the steady performance in the quarter.

“[W]e drove solid sales growth in the mid market and improved profitability in North American Retail during the first quarter,” she said. “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.” 

The office supply retailer's operating income rate fell 66 basis points to 5.2% compared to the first quarter last year, reflecting investments in its sales force and supply chain. But the decline was partially offset by an increased product margin rate, the company said. Faced with declining retail sales, Staples for months has been in search of a new plan of action.

But while Staples is "stabilizing," it's not likely to see a sustained turnaround this year, particularly because its strategy will likely further erode the retail side of its business, GlobalData Retail Analyst Carter Harrison said in a note emailed to Retail Dive.

"As much as there is some sense in Staples' thinking  not least because the business side of the group is more profitable than retail and is a division it can grow while shutting and downscaling stores — we are not entirely convinced by the strategy," Harrison said. "[W]e .. maintain our view that Staples should make much more effort to persuade consumers to buy from it. A failure to do this will lead to the faster and unnecessary decline of this part of the business, something that will damage Staples as it tries to recover."

Plus, he also said, the business market is "not a panacea."

"Indeed, it suffers from many of the same pressures as retail, not least the incursion of Amazon and other online players," Harrison noted. "From our experience, it is far more difficult to persuade business customers to switch brands on the back of emotional marketing. We do not believe that Staples' efforts will fall entirely flat, if only because they will increase awareness of its business offerings. However, neither do we see them as being a medium term savior of the company."

Amazon’s success in the business-to-business side has been something of a surprise because that's an area thought to be more protected than the retailers’ consumer retail sales, Matt Sargent, senior vice president of Retail at Frank N. Magid Associates, told Retail Dive in an email earlier this year

“The impact that Amazon has had on Staples' consumer segment cannot be underestimated, but what is more concerning is the impact that Amazon is having within the B2B space,” Sargent said. “Amazon is penetrating small, medium and large corporations within office supplies. This is a red flag for Staples given that corporate office supplies are the most profitable segment of Staples' portfolio.”

Private equity firms Cerberus Capital Management LP, Sycamore Partners are reportedly eyeing an acquisition of the office supplies retailer. (A Staples spokesperson has previously declined to comment to Retail Dive on rumors of a sale.) Yet, other potential buyers, including Clayton Dubilier & Rice LLC, Advent International Corp and previously owner Bain Capital LLC, have become discouraged about the struggling office supplies retailer’s prospects in a tough retail environment.

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Top image credit: Mike Mozart