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Staples (NASDAQ: SPLS), a seller of office supplies and a competitor of chains such as Office Depot (NYSE: ODP), OfficeMax (NYSE: OMX), and Wal-Mart (NYSE: WMT), reported Q2 earnings on Tuesday. Although they weren't that great, I can't say I felt they were a total disaster, either. I think the quarter was lackluster and indicative of the immense work ahead for management in terms of getting people into their stores and increasing sales per transaction.
According to the press release, total sales increased 9% and adjusted earnings per share declined 24% to 16 cents. That's a steep drop, but they did match analyst expectations. Staples used the increase it saw in free cash flow in a smart way: debt reduction. I approve of that move, to be sure.
The cash flow and the meeting of expectations made me say the quarter wasn't a disaster. However, same-store sales, an extremely important metric for retailers, fell 5% in North American locations. In Europe, comps declined 3%.
Staples continues to deal with the complexity of the Corporate Express integration, but it will have to try harder when it comes to getting those comps up. When I checked on the company back in the first quarter, I also noted same-store sales that were not acceptable.
It's kind of surprising in one sense. Staples has engaged in an interesting marketing campaign and brand identity with the whole "easy-button" thing. Quite honestly, when I think office supplies, I do think Staples.
Still, Staples obviously isn't running on all cylinders. Hopefully the back-to-school selling season will be kind to the retailer. Shares of the company closed down 1.8% yesterday on the earnings news; volume was significant. Staples is currently not on my watch list. There have to be better ideas out there, I'm sure.
Disclosure: I don't own any company mentioned; positions can change without notice.
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