Staples Stumbles After Disappointing Earnings

The office supply super store downgrades its outlook for the year.
4:50 | 05/20/14

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Transcript for Staples Stumbles After Disappointing Earnings
I'm Michelle brand New York -- the markets on Wall Street clothes for Tuesday may twentieth this story stops. Today we're looking at that office superstores staples. Doing so super anymore -- explain why Rick Newman of Yahoo! finance. So Rick we've seen a -- -- what's happening behind staples the staples reported earnings today they weren't terrible -- They missed expectations by a little bit but this is a story we've heard before most importantly staples said. We don't think the rest of the year is going to be as good as we thought a few months ago so they downgraded their outlook for the rest of the year. Investors hate to hear that that's bad news for the future the worst thing you can hear -- stock and as a result we saw huge plunge in. Stock today twelve and a half percent about it fell. Which is quite a lot. Investors just do not like the prospects for this company that -- it is basically a staple if you will of the -- retail landscape. Well let's stay on that percentage -- shares in the office supply store were already suffering this year down 16%. Give us an idea again of how this today's stock star. Stock chart. Has gotten a little worse. Yeah that's terrible I mean. You know I think there -- two things going on here Michelle first we keep hearing about. Weakness in the retail economy. Small businesses obviously are a big part of staples consumer base. -- strike they continue to struggle ordinary middle class Americans continue to struggle so we know that's going on I think another thing reflected here is. Investors losing confidence in the in the retail economy if you will. There's nothing new about the fact that online sales are displacing. In store sales. But when you start get a feeling that these these companies. Are just stretched over too much physical real estate. It's really hard did real that in and it's expensive -- -- staples has a plan. They want to close more than 200 stores to try to cut their costs but that costs money. And I suppose investors are saying themselves were worried maybe that's not enough may be. Sales or migrate your migrating over to the web that such a pace that they may have to close more stores take more caution that could degrade the -- further in the future. Yeah Rick let's talk about that plan and they -- shut 220 five's of its US stores by the end of next year. And they have -- what over 15100 stores here how anybody could grading. How wasn't progressing and how they choose which stores are closing. I think. One of the first things they do is look for overlap. Where in the past they may have had to stores fairly close together. Maybe there is enough business to sustain that five or ten years ago with the -- looking these two stores are cannibalizing each other sales. I'm sure they also look at. Areas where they're just not getting the traffic anymore so sales are down I'm sure they're they're gonna close their worst performing stores. You know this is a transformation it's happening all across retail America malls are in trouble big malls. Strip malls are in trouble. This you know we're nowhere near they finish line in terms of how online shopping is -- -- -- transforming. Others retail stores and you know we've heard we've seen this before it was some. Pretty frightening results -- in blockbuster video's of great example of a company that got way overextended on physical real estate. And there almost couldn't recover what they couldn't recover from that they declared bankruptcy and other one is borders books. Just had too much physical real estate those are expensive commitments and just closing store -- can do that but it's very expensive. And at the same time your closing stores maybe you're not investing. In your online operations or other places where you need to be putting money to keep up with the competition so there's a danger here sort of spiraling down. Is there -- -- a chance though that staples could move into that online world where other businesses have failed. A -- that was already there I mean -- actually has a very busy website for a long time and they've had actually been one of the most trafficked. E-commerce web sites on the entire Internet but obviously that's just not good enough it's not a big -- a percentage of their sales. Enough people don't know about it. And they're losing out they're losing out as Amazon gets into that business Wal-Mart wants to do that the you know anybody who does retail anymore wants to. Get as much of the consumer dollars they can't in the user. You know these commodity products for the most part -- staples sells some electronics. Office and office supplies and anybody can cell line that stuff so. It's kinda getting the point where you have to ask what's so special about staples maybe not all that much. Rick Newman of Yahoo! finance thanks for breaking that down -- Even watching stories -- stay with abcnews.com. For your latest business headlines I'm Michelle Franzen in New York.

This transcript has been automatically generated and may not be 100% accurate.

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