Why Staples Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of office supply chain Staples (NAS: SPLS) plunged 15% today after its quarterly results and outlook came in well below Wall Street expectations.

So what: Office supply chain results are often viewed as a gauge of economic health, so Staples' wide second-quarter miss -- EPS of just $0.18 versus the consensus of $0.22 -- combined with downbeat guidance for the full year, is triggering concerns over deteriorating global demand. The disappointing report also reinforces fears about increased competition from the likes of Wal-Mart and Amazon.com, as well as weak employment rates in the U.S., giving less patient investors plenty of reasons to run.

Now what: Management now expects full-year-earnings growth in the low-single-digit-percentage range -- versus a prior view of high single-digit growth -- on flat year-over-year sales. "We're taking a hard look at each of our businesses, and we plan to make significant changes to improve results," Chairman and CEO Ron Sargent said. "We're also building a plan to reallocate resources, take advantage of our best growth opportunities, and drive increased cost savings." When you couple Staples' still-dominant position in the office supply space with its paltry P/E of seven, buying into that turnaround talk might not be a bad play.

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The article Why Staples Shares Sank originally appeared on Fool.com.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Staples and Amazon. Motley Fool newsletter services have recommended buying shares of Staples and Amazon. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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