Staples (NASDAQ: SPLS) issued its Q1 report on Wednesday. Call me unimpressed. It beat earnings estimates by a penny, coming in at 22 cents on an adjusted basis. Sure, that's what investors want to see. They want the bottom line to go beyond expectations.
But there isn't a lot of excitement to be had with the Staples story. According to the press release, that 22-cent figure represented a decline of 27% in per-share profit. Furthermore, there's weakness in terms of same-store sales. In the North American market, comps dipped 8%. On the international front, comps went down by 14% in Europe.
Granted, the company says that its integration of the Corporate Express acquisition is going smoothly, but I still think that the economy will be rough on Staples. I will say this, though: the cash-flow statement wasn't bad. I liked some of the changes I saw in working capital. They helped bring an increase in cash from operations. In fact, management said it used some free cash flow to reduce debt.
Staples, which competes with OfficeMax (NYSE: OMX) and Office Depot (NYSE: ODP), will continue to see challenges to profit growth. Until the economy is in better shape, this retail sector will find it difficult to find opportunities for shareholder value. All that these companies can do now is make sure that costs remain in check.
Staples stock hasn't done badly this year. And Steven Halpern highlighted analyst commentary back in March that said the business may be a buy for long-term investors, especially fans of dividend investing.
I don't find Staples to be a compelling buy at this point in the economic cycle. While the stock is in the green on a year-to-date basis, it has retreated somewhat in the last month. Maybe you might get a trade out of Staples on a pullback, but if I want to invest for the long term, I'll probably go with better prospects, ones that possess better brand equities and more attractive future opportunities.
Disclosure: I don't own any company mentioned; positions can change without notice.
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