Investors reacted strongly to Staples' weaker-than-expected forecast and news that the office products retailer would invest the majority of its $150 million in cost-savings this year back into the business.
The Framingham-based chain's shares dropped by more than 7 percent to close at $12.14 yesterday.
"Clearly, the earnings guidance for fiscal year 2103 was disappointing," said Anthony Chukumba, a BB&T Capital Markets analyst. "Investors would have preferred to see more of that (savings) flow through to the bottom line."
Last fall, Staples unveiled a cost-cutting "reinvention" plan with expected savings of $250 million annually by early 2016. The plan included reducing U.S. and European store counts, more investment in online and mobile efforts, and expansion beyond traditional office supplies into break room supplies, copy and print, and technology.
Staples plans to reinvest this year's savings into "sharper" prices, information technology, expanded marketing, customer acquisition and employees.
"Our new vision is every product your business needs to succeed, and we're confident that we can accelerate growth in categories beyond office products," Staples chief Ron Sargent said, pointing to the company's progress in sales of supplies for facilities and break rooms, which grew more than $200 million last year for a $1.8 billion business. "We see big opportunities in areas like technology products, medical supplies, safety supplies, mail and ship, and office decor."
Staples also has developed a smaller, 12,000-square-foot store format with an updated Staples.com kiosk and "endless-aisle" shopping. The first ones will open this quarter. "We're confident that we can retain the vast majority of our sales in this new format while also driving sales of an expanded online offering," Sargent said.
Staples eliminated more than 1 million square feet of retail space last year and plans to cut an equal amount this year through 30 net store closings and 45 combined relocations and downsizings, half to the new store format.
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