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Easy Button Out of Reach for Staples

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Office retailer scales back guidance.

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On Tuesday, office supply retailer Staples (SPLS) offered its second-quarter outlook, which unsurprisingly reflected the sluggish economic environment. Excluding the company's recent Corporate Express acquisition, among other items, earnings per share decreased approximately 15% compared to 2007's second quarter.

Sales increased 3%, while North American comp-store sales dropped some 7%. A quick look at last year's second quarter results reveals that North American comps were down 2% in 2007. I think the comparison shows how much the company is indeed struggling.
Staples also forecast full-year sales growth in the low single digits, as well as earnings per share of $1.42 - flat, as compared with the company's adjusted earnings in 2007.

This is in contrast with the guidance Staples offered in May, "which called for mid single-digit sales growth and high single-digit earnings per share growth for the full year."

It's more than a little surprising that the sell side didn't see this coming, given the fact that Staples hardly ripped the cover off the ball in its first quarter. In addition, its rival Office Depot (ODP) turned in a small loss and reported some lousy North American sales results. And Illinois-based Office Max (OMX) saw red in its second quarter.

And yet, when I look at the average estimate for the year, I see that it's only ticked down a penny in the last 60 days - from $1.50 to $1.49. What were they thinking?
I'm expecting that the sell side will get a little religion in the days ahead and pull back their numbers. Unfortunately, I'm concerned that could have an adverse impact on the shares.
Finally, the shares have bounced back nicely since the beginning of the year; however, I'm now concerned that this quarter will leave a bad taste in investors' mouths - and possibly lead to a difficult tax loss selling season.
Note: Staples is due to release its full quarterly results on September 3rd, so stay tuned.
Staples closed at $23.55, down $1.03 or 4.19%.

For more on Staples, check out Hoofy and Boo's always astute report.

No positions in stocks mentioned.

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