Staples's Strong Results: Economic Indicator?
This morning's better-than-expected report from Staples (SPLS) is probably more important than you think.
Maybe you aren't an investor in the office supply superstore chain. You probably don't care about how many reams of copy paper or toner cartridges Staples is selling. However, when it comes to checking the pulse of the country's economy, it's hard to find a better subject than Staples.
If companies and entrepreneurs are buying more office supplies, it's usually an encouraging sign that business in general is picking up. That's so simple you don't even need to tap one of the chain's signature "easy" buttons to figure it out.
The Results Are In
How good was Staples' fiscal second quarter? Well, the performance and the retailer's guidance were enough to send the stock opening 8% higher today.
Sales climbed 5% to $5.8 billion. This may not seem like much, but it was more than twice the growth that analysts were targeting. Reported earnings soared 36% to $0.25 a share, but that's a Jedi mind trick. Staples was on the receiving end of a juicy tax refund this quarter, and last year's fiscal second quarter was sandbagged by one-time integration and restructuring expenses. On an adjusted basis, earnings climbed 10% to $0.22 a share. Wall Street had settled for a profit of $0.20 a share.
Things aren't perfect. Operating margins were weak in the chain's North American stores, and stateside comparable store sales were flat. However, that's stuff for Staples shareholders to fret about.
Encouraging Signs for the Economy
In terms of gauging the state of Corporate America, Staples points out that delivery sales of facilities and breakroom supplies grew in the double digits.
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Nice! Your office manager is loading up on plastic cups and Purell!
This is historically Staples' weakest quarter. Business doesn't necessarily slow during the summer, but the steady trickle of students and teachers snapping up school supplies during the other three quarters of the fiscal year takes the summer off. If anything, it also makes this the best quarter to gauge Corporate America.
Staples is upbeat about the balance of the year. It's now forecasting an adjusted profit between $1.39 a share and $1.45 a share on sales growth in the low single digits. Wall Street had been betting on just $1.37 a share in earnings on 2% sales growth.
There are definitely some gloomy economic signs out there, but if we're to believe Staples, there's a potluck celebration taking place in the office break room that the naysayers don't see coming.
Longtime Motley Fool contributor Rick Munarriz does not owns shares in any of the stocks in this article. Motley Fool newsletter services have recommended buying shares of Staples.
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