Staples (SPLS) Sells Off on Downward Guidance

Despite flat sales compared to a year ago, Staples increased earning this quarter by 38 percent. Staples reported second-quarter earnings of $0.18 per share, a $0.05 increase from $0.13 per share in the year-ago period. Total company sales equaled 5 billion.

After restructuring charges and other non-recurring costs, the office products company expects to earn between $1.20 and $1.24 per share for fiscal year 2010.  The company reduced its forecast by $0.06 due to a revised tax rate higher than forecast.

The stock sold off on the news.

Staples Inc (NASDAQ: SPLS)

Comments: Like many companies in the retail sector, SPLS is holding higher inventories but for SPLS, customers are spending less — a double whammy. Its forecast for fiscal year 2010 assumes a “modest economic recovery” for the second half of 2010. While this optimism is welcome, forecasts for a modest recovery towards the end of 2010 are growing less optimistic. It looks like SPLS may have more bad news ahead.

Disclosure: No positions