Staples 4Q14 Earnings Call Notes

Acquiring office depot

” last month we announced plans to acquire Office Depot. Staples and Office Depot have put the right resources in place to get the deal approved as smoothly and as quickly as possible. ”

Acquisition gives us scale to compete with people who are much bigger

” I think the Office Depot, OfficeMax, Staples combination really gives us a historic opportunity to be even more competitive on pricing as we look to compete with competitors who are much bigger than Staples in the future.”

Decline in PCs and tablets

“the negative 4% for Q4 in stores that was I would say entirely driven by tech and unfortunately the good balance that we saw in copy print and our core supplies business and decent growth in some of the other emerging categories was offset by essentially the decline in PCs, PC peripherals and actually the tablet business. So, it’s a little bit worse in Q4 than we expected and we have seen in other quarters, but essentially that was because of the entire miss.”

People moving to stores close to them rather than online when store closes

“Majority is moving to the store nearby. We have tried to measure the online, there is a slight pickup online, but I would say overwhelming majority is to the closest stores.”

Customers and suppliers excited about acquisition

“our customers would say guys this is a great opportunity to take costs out of the Staples operation and hopefully you will be able to pass some of those savings along to us. I think for the most part, something like 70% I would think was a positive and upbeat. I would say probably 25% or 30% were more in the neutral range. And I think in terms of suppliers, I think in general, our suppliers were probably that sort of ratio or maybe even a little better.’

Big customers know what their suppliers costs are

” frankly the other thing is, they are clear that obviously they watch our costs very carefully. They look at our raw material inputs very carefully. And if obviously we weren’t providing great value and lower prices all of the time or better services all the time, there are other places to go.”

Big competitors today

” obviously Grainger is selling office supplies these days. Amazon has just launched their B2B offering. We have got some credibly strong regional players. And there are a lot of even large companies that buy from local mom and pops, and there are thousands of them out there.’

Think they can get $1 B in synergies out of acquisition

“When you look at the $1 billion of synergies that will come to us as part of the Office Depot acquisition that’s a part of it, but frankly it’s a small part. And when you look at the big parts, you got to look at purchasing efficiencies, marketing spend that will not be duplicative. You got supply chain. You certainly have retail store optimization, but I think G&A would be a large one as well. So, until we have a chance to spend more time with Office Depot and really put together an integration plan and we are working to see if we can kind of do that with maybe a third-party so that we can speed up the process. Until we can do that, it’s going to be hard to be too specific, but the retail store optimization is kind of a small part of the total synergies.’

We’ve been trying to reposition the company

“2.5 years ago we said we could ride the paper-based office supply business for a while longer, but that probably wasn’t the right idea long-term and we announced the reinvention plan that we announced I believe it was in maybe September 2012. We knew that we had to make a lot of investments, because paper was being replaced by technology. We knew that there was a channel shift going on from retail to online. And we also realized that the competition in the future was probably going to be different than the competition in the past. Over the last 2 years, we have done an amazing number of things to kind of reinvent Staples, whether it’s expanding the product line from 30 to over 1 million SKUs in the beyond office supplies category, whether it’s rationalizing our store network, whether it’s taking cost out of every line on the P&L investing heavily in our online business and our contract business. So, we are trying to position the company for the future. And I think those investments that occurred in ‘13 and ‘14 they are never as quick or as easy as you would like, but I think when you look at the last couple of quarters, we are starting to see the returns from those investments. And frankly when you look at 2015, it’s going to be a little less of an investment year and a little more of kind of deliver on those investment years.”

Product destination for business

“We will remain focused on achieving our vision to become the product destination for business.”