Future Mergers?

A couple of weeks ago, Staples announced their quarterly earnings.

Most of the transcript that I read sounded more like the type of gloom and doom that was expected from the company.

Sales are not as good as they have been.

The company wants to shut about 140 stores by year’s end.

The company is shrinking the floor space of their stores as they try to downsize their footprint in the retail world.

And finally, the company is not using weather as an excuse this last quarter for its dismal performance.

So with so much bad news, isn’t it funny that a little bit of sarcasm was injected into the last quarter’s report conference call?

Simply put, one caller wanted to see if putting a Starbucks into Staples stores might help improve traffic and make people want to shop there.

Certainly such an idea should and was laughed off as some sort of joke but truth be told that the company has to do something to help it try to survive in the future.

After this report came out, the company’s stock took a smaller hit than normal, but was still down. However over the last couple of days the stock has gone up to nearly $13/share. So what is happening with the company?

It seems as though Credit Suisse thinks that a Staples/Office Depot would be great for both companies. They assume that the stock would go up to $30/share and that the remaining 2 companies would work great together.

However, I don’t believe this for one moment. The truth is that a merger was denied by the federal regulators last time and I don’t think it would happen now either, so all these people are going on false pretenses of something that could never happen. I expect that the bubble will burst soon in this stock sending it plunging below $10/share very soon.

It may come as late as next earnings report as it seems that the back to school season looks more like bust than a boom.

Why do I say that you ask? Here are some of my observations locally (of course without stepping into a Staples store):

· The Staples ads have been awful this BTS season. People dancing and jumping around just made me nauseous. Nothing was memorable in any of the ads. Target and Walmart ads were no better and quite forgettable.

· Plenty of knapsacks and lunch bags still available at Target and Walmart. This is a sure sign that kids will be using last year’s gear for another year. Unfortunately, this year it seemed that licensed products were quite limited and seems to be a repeat of merchandise of years past.

· Plenty of general school supplies like pens, pencils and paper. Again, it seems parents over bought last year so they have plenty.

· One stop shopping. Forget the ads as everyone seems to be price matching everybody else.

· It seems that from the ads that Staples got rid of that horrible shopping pass that they had the last couple of years. Who really would pay to get a discount? Hopefully that never comes back again.

I don’t believe that any of the stores will have a great back to school season as it seems even this late in the season there is still more than plenty of product on the shelf.

Maybe a Starbucks/Staples/Office Depot merger might be a better idea.

Or maybe not.

Update on Market Basket:

Last time I said that Arthur T. Demoulas wanted to buy the company. Well, since then, he bought the company for $1.5 billion and it seemed almost immediately that the company came back to life.

Our family visited the local store this week and found the store about 70% restocked, but there were many products on the shelves that were at or near their expiration dates. I believe that it will be about another couple of weeks to get new products on all their shelves. However, it seemed nice to shop at a store where employees actually like to work unlike companies like Staples. Market Basket is a model company where the employees are actually happy on their job and it definitely shows.