Staples (SPLS) Slammed as Large Q2 Sales Drop, Weaker Outlook Have Investors Checking Out

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Staples, Inc. (Nasdaq: SPLS) is getting hole-punched this morning, following flat second-quarter 2012 earnings results, as the office supplies retailer issued a cautious outlook.

Revenue for the Framingham, MA-based retailer fell 5.5 percent to $5.5 billion in the quarter. Net income plummeted 32 percent to $120.4 million, or 18 cents per share. Adjusting for certain one-time items, EPS ended-up at 22 cents.

Overall, consensus estimates called for revs of $5.73 billion and EPS of 22 cents.

Sales for North American Delivery fell one percent to $2.4 billion, while North American Retail sales dropped three percent to $2.0 billion. Constant-currency International sales fell 10 percent to $1.1 billion.

North American Delivery suffered from the loss of two large customers with N.A. Retail dropping on lower sales of computers, software, and computer accessories.

Looking ahead, Staples said its "adopting a more conservative sales and earnings outlook. Current expectations for 2012 assume slower growth in the U.S. economy and continued weakness in the demand environment in Europe." GAAP sales are expected to be flat year-over-year for 2012 with diluted earnings per share to increase in the low single-digits versus adjusted diluted earnings per share of $1.37 achieved in 2011.

Analyst Comments

• Goldman Sachs said, "These results speak to a challenged sector; tough top-line trends have been evident in peers’ results as well. In addition, SPLS is starting from a position of robust margins, which remain well above those of peers but leave it with more to lose in a tough backdrop." Goldman voiced concern about fading paper consumption "as the trigger for a challenged revenue and profit backdrop."
  
  
• KeyBanc was looking for a sales drop of just one percent, with N.A. Retail sales and comps expected to be flat.
  
  The firm also noted: "Company gross margin declined 51 basis points to 26.0% (which was below our estimate of 26.3%). Operating and selling expense as a percentage of sales deleveraged 28 basis points to 21.7% (vs. our estimate of 21.3%). As a result, company operating margin in the 2Q contracted 78 basis points from last year to 4.0% and was below our 4.7% estimate."

Staples is off over 15 percent Wednesday morning.

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