Like all commercial property companies, Staples Inc. has faced the reality of trading in an incredibly tough economic environment. Since the start of the recession in 2008, businesses have seen profits plummet and banks becoming less and less likely to lend, leading to financial problems across the board.
Unfortunately for Staples, these issues do not seem to have improved upon conclusion of the second financial quarter of 2012, ending on July 28th.
When compared to 2011’s second quarter results, it certainly seems that the company has failed to keep up the good work with regards to sales. Total company sales results were $5.5 billion – a drop of six per cent from the previous year.
This can be put down to a number of reasons, such as the increasing popularity of online shopping, supermarket stock expansion into items stocked by specialist stores such as Staples, and obviously the current worldwide financial crisis.
During the second quarter of 2011, Staples Inc. were deemed eligible for a $21 million tax refund, perhaps explaining the steep drop in revenue from last year to this. However, even with the tax break excluded from results, Staples commercial properties performed far better last year than this, with a drop in diluted earnings per share of 18 per cent demonstrating this.
While the office supplies company performed reasonably well in North America, dropping only three per cent in profit compared to the second quarter of 2011, it was a different story when examining the international sales results. Sales in International Operations totalled $1.1 billion, a colossal drop of eighteen per cent in a single year. Part of this can be contributed to the present Eurozone crisis, resulting in a nine per cent decline in comparable store sales.
Staples’ chairman and chief executive officer, Ron Sargent, said; “Our second quarter results fell short of our expectations due to softer than expected sales trends in North America and ongoing weakness in Europe and Australia.
“We continue to build momentum in categories beyond office supplies, but these improvements were more than offset by weakness in computers and core office supplies during the second quarter.”
The poor sales in Europe even led to the company making the decision to look at the possibility of closing stores. During the second quarter, only one European shop was closed, taking the total number of stores in International Operations to 375.
So what of the future? Clearly, Staples overestimated the market, and as a result achieving their annual sales goals seems unlikely. As a result, Mr Sargent revealed that the business now intends to adopt a more conservative sales and earnings outlook, playing to their strengths in order to bump up revenue in the third and fourth quarters of 2012.
He continued; “We’re taking a hard look at each of our businesses, and we plan to make significant changes to improve results.
“We’re also a plan to reallocate resources, take advantage of our best growth opportunities and drive increased cost savings.”
However, with even large multinational companies struggling to meet their sales targets, there has never been a surer sign that the recession is taking hold of retail businesses worldwide. With chain stores going into administration frequently, and small businesses collapsing on a daily basis, it seems that no-one will be able to breathe easy until the worldwide financial crisis is resolved once and for all.
