OfficeMax and Office Depot are declining in an overcrowded business. 24/7 Wall Street listed eight retailers that will likely close stores and OfficeMax and Office Depot were on the list. Staples wasn’t. OfficeMax has reportedly $1 billion in off balance sheet debt and $2 billion in asset write downs. Earnings have surprised to the upside in the past, helping the stock to more than double in the past year. Will this trend continue? While OfficeMax is opening smaller stores that should help overhead costs, the strategy hasn’t worked in the past.
Office Depot stock has recovered from its summer lows, but earnings remain lean. Sales fell 5% in 2012 and Standard and Poors projects more sales declines for 2013. Like OfficeMax, Office Depot will focus on closing unprofitable stores and opening smaller stores to control costs. Office Depot recently launched its Small Biz Club to help small businesses grow. According to the website, this Club will offer guidance and coaching for starting and growing small businesses, but not provide the various cloud based apps Staples offers. While OfficeMax and Office Depot aren’t capitulating, they face substantial headwinds in a highly competitive market. Both companies cut costs, but that can only go so far when revenues decline. Store closures also create expansion opportunities for Staples.
Final Foolish Thoughts
Amazon dominates online retailing in general. In the office supply niche, Staples’ combination of cost cutting, expansion into the Japanese market and innovative products and services should help the company maintain its #2 spot in online retailing. These same initiatives will also pressure OfficeMax and Office Depot. As a “cherry on top,” investors will like the 3.3% dividend and ongoing stock repurchasing. To be sure, Staples must confront its own challenges. However, the push for innovation, particularly its Apps Center, gives me confidence Staples will emerge on top of the office supply business.
The article 3 Ways Staples Just Might Nail the Office Supply Business originally appeared on Fool.com and is written by Robert Zimmerman.