Staples Q1 Profit Falls, Sees Q2 Earnings Below Estimates

(RTTNews) - Staples Inc. (SPLS) Tuesday reported a sharp decline in first-quarter profit amid lower sales as well as restructuring charges associated with store closure. The office supplies retailer forecast second-quarter earnings below analysts' estimates and expects sales to decline from last year. In pre-market trading, the shares fell about 11 percent.

Ron Sargent, chairman and chief executive officer of the company said, "Despite a slow start to the first quarter, our results were in line with our expectations and we expect to build momentum throughout 2014."

For the 13 weeks ended May 3, 2014, the company posted net income of $96.21 million or $0.15 per share, down from $169.93 million or $0.26 per share in the first quarter of 2013.

The company incurred $46 million of pre-tax restructuring and other related charges mainly associated with closure of 16 stores in the first quarter, as well as its plan to close around 80 stores in North America during the second quarter of 2014.

Staples also incurred an $11 million tax charge related to the repatriation of foreign earnings, as well as a net gain of $22 million primarily related to the sale of the company's Smilemakers business.

On an adjusted basis, earnings were $0.18 per share for the recent quarter. On average, 17 analysts polled by Thomson Reuters expected the company to report earnings of $0.21 per share for the quarter. Analysts' estimates typically exclude special items.

Quarterly sales declined 2.8 percent to $5.65 billion from $5.81 billion in the year-ago quarter. Wall Street analysts' revenue consensus was $5.62 billion.

Sales were down 2 percent, excluding changes in foreign exchange rates and the impact of store closures.

North American Stores and Online segment's sales declined 4.9 percent to $2.63 billion, and comparable store sales fell 4 percent from last year. Changes in foreign exchange rates negatively impacted sales growth by about 2 percent.

Sales growth was also negatively impacted by nearly 1 percent due to stores closed during the 12 months preceding the first quarter of 2014, net of estimated sales transfers to remaining stores, the company said.

North American Commercial segment's sales edged up 0.7 percent to $2.06 billion. In the International operations, sales dropped 3.9 percent to $964 million, driven by weakness in the company's European delivery businesses. Comparable store sales in Europe were flat.

Total operating expenses advanced to $1.27 billion from $1.23 billion a year ago.

Looking ahead to the second quarter, the company expects adjusted earnings per share to be in the range of $0.09 to $0.14. Sales are expected to decrease compared to the prior-year quarter.

Analysts expect the company to report earnings of $0.15 per share, on revenues of $5.19 billion for the second-quarter.

Staples said its guidance excludes any potential impact on earnings per share related to 2014 global restructuring and other related activities.

The firm expects to record pre-tax charges in the range of $105 million to $155 million associated with restructuring and other related activities during the second quarter of 2014.

For full year 2014, the company expects total pre-tax global restructuring and other related charges in the range of $240 million to $360 million.

SPLS closed Monday's regular trading at $13.39 on the Nasdaq. In the pre-market activity on Tuesday, the shares are down 10.75 percent.