Why Staples Earnings Did Not Measure Up to Office Depot

Staples Inc. (NASDAQ: SPLS) reported its fiscal fourth-quarter financial results before the markets opened on Thursday. Unfortunately, Staples earnings did not live up to expectations and even fell short of its main competitor Office Depot Inc. (NASDAQ: ODP), which reported last week. In the ongoing competition between these two companies, it appears that Office Depot is pulling ahead.

24/7 Wall St. has included some of the key highlights from the Staples report, as well as the Office Depot earnings report from last week.

Staples posted $0.25 in earnings per share (EPS) and $4.56 billion in revenue, compared with consensus estimates from Thomson Reuters that called for $0.26 in EPS and revenue of $5.04 billion. In the same period of last year, the retailer posted EPS of $0.26 and $5.27 billion in revenue.

Total company comparable sales for the fourth quarter of 2016 declined 1% year over year.

For the full year 2017, the company expects to generate at least $500 million of free cash flow and to close approximately 70 stores in North America. In terms of the fiscal first quarter, Staples expects to see EPS in the range of $0.15 to $0.18, which compares to the consensus estimates of $0.17 in EPS and $4.96 billion in revenue.

Office Depot said that it had $0.11 in EPS on $2.73 billion in revenue. The consensus estimates were $0.10 in EPS and revenue of $2.71 billion. The same period of last year reportedly had EPS of $0.06 and $2.77 billion in revenue.

Office Depot’s segments were reported as follows:

  • Retail Division sales were $1.37 billion, with an operating income of $62 million.
  • Business Solutions Division sales were $1.36 billion, relatively flat compared to the prior-year period.

For 2017, Office Depot expects total company sales to be lower than 2016, primarily due to the impact of store closures, prior-year contract customer losses, one less selling week and continued challenging market conditions. But on the plus side, the company expects the rate of sales decline to improve throughout 2017, based on improvements in customer retention, implementation of new customer wins and continued growth in the contract channel sales pipeline.

Shares of Staples closed Wednesday up 2% at $8.96, with a consensus analyst price target of $9.91 and a 52-week trading range of $7.24 to $11.37. Following the release of the earnings report, the stock was down 4% at $8.60 in early trading indications Thursday.

Shares of Office Depot closed Wednesday up 4.3% at $4.63, with a consensus price target of $4.72 and a 52-week trading range of $3.01 to $7.91.

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