Office Supply Crunch Should Have Been Known: What Efficient Market?

It should have been known that things were going to be bad at Office Depot. The question is just how bad they should have been. Office Depot reported a quarterly loss, if you include the charges related to the OfficeMax acquisition. The reported loss as $144 million, or -$0.34 per share, but the adjusted loss was only $0.03 per share.

Sales were shown to be up 33% to $3.49 billion, but we would note that the merger skews these numbers. Thomson Reuters had an estimate of $0.04 in earnings per share and 44.2 billion in revenues.

Again, things were already expected to be bad — but this bad? Just about every retailer in the nation seems to be suffering under poor weather conditions. Consumer confidence also showed that the expectations for the months ahead have tanked as well.

The real fly in the ointment was Best Buy Co. Inc. (NYSE: BBY). Its preliminary report took shares from $37.57 down to $26.83 on January 16. Best Buy has so many overlaps with office supplies stores that the comparison was almost a shoe-in that things would not have been good. On that same day as the Best Buy drop, Office Depot shares fell from $4.84 to $4.77.

So, a drop of 13% to $4.65 sounds terrible on the surface for Office Depot holders. Where it gets a little less atrocious is that the drop is only about 3% lower than when Best buy wrecked the stock back in January.

Staples Inc. (NASDAQ: SPLS) is getting hit hard too on this news. After all, it is now in a virtual duopoly with the Office Depot and OfficeMax entity. Staples shares were down 3.7% at $12.90 in late morning trading reaction on Tuesday. Unfortunately, this means that things are actually much worse for Staples on the surface than they have been for Office Depot, because the Staples price drop after the Best Buy tank in January went from $14.47 to $13.89.

Office Depot shares are down only about 3% more going back to January 16, while Staples is down more than 7% in the same period.