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Tough day for retailers today with both Costco (COST) and office supply store Staples (SPLS) taking it on the chin after reporting weak earnings results and worse than expected sales and margins. The triple-crown on lousy news if you’re running a retailer.
The big shocker is Costco. Known as one of the best operators in the retail industry, Costco built a reputation for reliable sales and earnings growth even as competitors like Target (TGT) and Walmart (WMT) struggled. Not anymore. This is the third straight quarter earnings have come up short. While Costco rather refreshingly didn’t mention weather in their report, they did say that margins were a problem. That trend is unlikely to improve anytime soon.
The best thing Costco may have working for it is its relative performance. None of the discounters are doing much better as margins get crunched across the board, both online and in the stores.
Speaking of which, office supply chain Staples is seeing its shares get three-hole punched to the tune of more than 10% after announcing earnings that fell a penny year over year to 13-cents. Sales fell more than 6% in the U.S. and declined 4% when adjusted for store closures. To that end, Staples also said it was closing 225 of its roughly 1,800 North American stores.
As if that weren’t bad enough, Staples says it expects to earn between 17 cents and 22 cents per share this quarter. Analysts had been looking for 27 cents.
What’s really scaring the street is weakness in Staples.com. Not many people are aware of the fact that Staples is the second biggest online store in the U.S., trailing only Amazon.com (AMZN).
Staples has ridden online growth since 1998 and does more than $10B a year online. That’s nearly half of the chain’s overall revenue. Unfortunately for investors, when Staples is weak both on and offline, it’s hard to come up with a bullish thesis.
It would seem the honeymoon is over for merchants. Last week shares of Target ramped despite reporting a much worse quarter than what we saw from Costco. This week, with the rest of the market strong, investors have too many bullish options to expect them to buy dips on negative earnings news.
As for Staples, investors may want to give that a quarter or two to see if they can shore up operations before trying to be a hero on the stock.
Other stocks making the Trending Tickers list today are: Kroger (KR) - the grocery chain up on an earnings beat; Children’s Place (PLCE) - the retailer sliding on a revenue miss; and SodaStream (SODA) - the make-your-own sodamaker ‘popping’ on an earnings beat.