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Staples struggles to stop the bleeding

Staples (SPLS) shares are down as the office supply retailer, battling competition from larger rivals such as Office Depot (ODP) and (AMZN), warned that its future earnings could slide.

Staples forecasted earnings excluding one-time items of 34 cents to 39 cents per share, lagging analysts' expectations of 37 cents. During the most recent quarter, net income fell to $82 million, or 13 cents per share, versus $103 million, or 16 cents, a year earlier. Excluding one-time items, the company recorded a profit of 12 cents. Sales fell 1.8 percent to $5.22 billion, which topped Wall Street estimates of $5.16 billion.

Earlier this year, Staples announced a cost-cutting plan that includes shuttering 140 underperforming stores in 2014 and another 85 next year. The retailer said it is "on track" to slash $250 million in costs this year and is looking for cuts that go beyond its previous target of $500 million by the end of next year.

'We're increasingly confident that we can continue to build on the early progress we've made with our reinvention," said CEO Ronald Sargent in a conference call Wednesday to discuss Staples's latest results. "At the same time, we've got a lot more work to do to get our retail business back on track. ... We'll continue to downsize and relocate stores to our more efficient 12,000 square-foot format, and we're developing plans to move to more aggressively reduced retail expenses to bring our cost structure more in line with our current sales base."

Staples to close 225 stores

As of 2:03 p.m. Eastern Time Staples shares sold for $11.28, down 34 cents. They have plunged more than 29 percent this year.

During his presentation, Sargent noted that sales in the company's North American commercial business increased by 3 percent in the quarter, its fastest growth in three years. Sales made through the company's website,, grew 8 percent, which was in line with expectations, as it added 250,000 new products.

Rival Office Depot, which acquired Office Max for $1.2 billion last year, is having many of the same problems as Staples. The retailer recently upped the number of stores it will close this year to 165, from 150; overall Office Depot plans to shutter 500 locations.

The road ahead for Staples is tough. For one thing, office supplies are increasingly commodity products that consumers buy based solely on price. Deutsche Bank analyst Michael Baker in June told clients in a note that he thought Staples had a "well thought out turnaround strategy," though he sounded a cautionary note. He has a "hold" rating on the stock.

"Demand remains weak, particularly in technology products, and pricing pressures continue, primarily in the stores and online segment but also potentially in the commercial segment as well," Baker said. "Therefore, we still see the negatives more than offsetting the benefits of the turnaround plan and expect operating margins to fall further before potentially stabilizing next year."

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