Staples Inc. (SPLS:US), the largest U.S. office supplies chain, plans to shut 45 locations in Europe and accelerate the closing of 15 stores in the U.S. as part of a plan to save about $250 million a year.
The closings, the impairment of goodwill in the European business and other actions will result in total pretax charges of as much as $1.12 billion in the fiscal year ending in January, Framingham, Massachusetts-based Staples said today in a statement. The pretax savings will be generated by the end of fiscal 2015, the company said.
Chief Executive Officer Ronald Sargent has posted sales declines in the past two quarters as workers shift to using fewer traditional office products, such as pens and folders. The retailer also has been hurt by slower job creation amid the recession in Europe and high unemployment in the U.S.
“The office supply business has been under pressure for really the past several years since the recession,” Joe Feldman, a New York-based analyst at Telsey Advisory Group, said in an interview. “It’s reliant on economic growth and small business formation, and we’ve seen a lack of both.”
The shares fell (SPLS:US) 4.5 percent to $11.80 at the close in New York, the biggest drop since Aug. 15. Staples has lost 15 percent this year.
Staples, the world’s second-largest Internet retailer, said it will use the savings to increase investment in the online operations. The company operated 2,295 stores as of Jan. 28, including 1,583 in the U.S. and 331 in Europe, according to a securities filing.
“A lot of purchasing has now shifted toward the Internet and mobile purchasing,” Feldman said. If the industry continues morphing into an online and direct business, “then you need fewer” brick-and-mortar stores, he said.
Other office-supply retailers have been trying to cut costs by shrinking store square footage and possibly shutting locations. Office Depot Inc. (ODP:US) will announce a plan in October that may include closing some of its 1,680 units, Kevin Peters, North American retail president, said earlier this month.
Last week, Starboard Value LP became Boca Raton, Florida- based Office Depot’s largest shareholder and started pushing for changes to turn around earnings and four straight years of sales (ODP:US) declines.
Staples also said it is pursuing the sale of its European printing systems business and will count the unit as a discontinued operation as of the third quarter.
Fortune reported earlier this month that private-equity firms have been considering buying Staples. The talks are preliminary and an offer wouldn’t be made until late this year, the magazine said.
Potential buyers need time to arrange financing and don’t want the public-relations challenges of buying a business associated with Republican presidential nominee Mitt Romney’s Bain Capital LLC, which was an earlier investor in Staples, during the campaign season, Fortune said.
Staples said it plans to return more than $1 billion in cash to shareholders through dividends (SPLS:US) and share buybacks in its fiscal 2012.
To contact the reporter on this story: Leslie Patton in Chicago at email@example.com
To contact the editor responsible for this story: Robin Ajello at firstname.lastname@example.org