Office Depot Inc (ODP): Staples, Inc. (SPLS) Takes a Break

Earlier this summer, office supplies retailer Staples, Inc. (NASDAQ:SPLS) took a detour from its typical path of supplying businesses with paper, ink, and paperclips and started selling barbecue grills, coolers, and patio furniture ahead of Fourth of July celebrations.

While the retailer tried to play it off as an extension of its breakroom supplies that it offers to businesses, I suggested the rationale was a stretch far removed from the selling of paper towels and coffeemakers. Rather than building on a core part of its business and taking it in a new direction, Staples, Inc. (NASDAQ:SPLS) was really deploying an offshoot of “deworsification,” a concept coined by famed money manager Peter Lynch to highlight when a company moves so far afield from its core competency that management’s time, effort, and money are wasted.

And the move doesn’t seem to have helped boost the slack sales the office supplies leader has been experiencing. Revenues for the second quarter, which ended on Aug. 3, fell 2% to $5.3 billion as the summer spectacular failed to generate additional foot traffic, with same-store sales dropping 3% year over year.

Although its breakroom business did witness some growth, it wasn’t nearly enough to offset the declines elsewhere. Which is why the news it just scooped up online office supplier Lonesource is a welcome reprieve from the recent false starts and poor management decisions made over the years. Staples, Inc. (NASDAQ:SPLS) still hasn’t recovered from the ill-timed acquisition of Corporate Express just before the market imploded, and it’s had to shut down its European printing business.

Of course, the problems aren’t wholly of management’s making, as the industry reels from the impact of the recession. That factor alone accounts for why rivals Office Depot Inc (NYSE:ODP) and OfficeMax Inc (NYSE:OMX) are forced to seek solace in a merger that is still pending completion. I’ve argued before that the industry and Staples, Inc. (NASDAQ:SPLS) would have been better off had the Justice Department not quashed its attempt to acquire Office Depot Inc (NYSE:ODP) a few years back, but regulatory hubris supplanted marketplace reality so that we ended up with three damaged businesses spread too thin instead of two healthy rivals.

The trio now are doing what they can to right-size, closing down hundreds of stores (and they will likely close down hundreds more when the Depot/Max merger goes through), and Staples, Inc. (NASDAQ:SPLS) acquisition of Lonesource shows management is thinking about its future.