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This could be a warning to small businesses

Talking Numbers

One of the biggest suppliers of office materials is having a bad day. Could this be a sign that small businesses are having a bad time, too?

Staples, one of the nation’s largest retailers catering to small businesses reported disappointing numbers today, causing its shares to fall 13%.

Staples’ revenues fell 2.2% to $5.3 billion in the most recent quarter compared to the same time last year. The quarter before, sales had dropped 3.5% from its comparable the year before. Profits were also down to $102.5 million from $120.4 million the previous year.

Meanwhile, some of Staples’ smaller rivals are also seeing their top lines drop. Office Depot revenues decline by 3.5% in its most recently reported quarter compared to the previous year. OfficeMax, which will soon be combining with Office Depot, had a 4.3% decline in revenues during that time, too.

(Read more: Office retailer shares sag on Staples report)

Staples’ stock has had a great 2013 so far, even when you include today’s drop; it’s up nearly 30%. But it’s still a third less valuable than what it was before the financial crisis of 2007/2008.

It wasn’t all bad news; Staples’ online revenues grew 3% and its direct-sales to businesses in North America were up 1.3%. But, that still wasn’t enough to offset the drop in walk-in sales to small businesses that, say, need a box of hanging folders and a pack of erasers right away.

(Read more: Staples cuts outlook after weak results abroad)

So, is this a sign that their small businesses customers are really struggling or is this particular to Staples and, maybe, a couple of competitors?

Looking at the fundamentals of Staples is John Stephenson, portfolio manager at First Asset Investment Management. On the charts is Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson. Both have warnings for anyone considering investing in this name.

To hear Stephenson and Ross analyze Staples, watch the video above.

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