Staples Q2 Profit Meets View, But Revenues Miss

(RTTNews) - Office supplies retailer Staples, Inc. (SPLS), which has agreed to acquire smaller rival Office Depot, Inc., on Wednesday reported a 56 percent decline in profit for the second quarter from last year on lower revenues and one-time charges.

However, adjusted earnings per share for the quarter met analysts' expectations, while revenues missed their estimates. Looking ahead, the company forecast earnings for the third quarter mostly below analysts' estimates.

Ron Sargent, Staples' chairman and chief executive officer, said, "Our second quarter results were in-line with our expectations and reflect steady progress on our strategic reinvention. We continued to drive growth in our delivery businesses and in categories beyond office supplies, and we grew operating income during the second quarter."

The company's net income for the second quarter fell to $36 million or $0.06 per share from $82 million or $0.13 per share in the prior-year quarter.

The latest quarter's results include pre-tax charges of $24 million related to restructuring and related activities and $34 million related to the acquisition of Office Depot.

Adjusted earnings for the quarter were flat with last year at $0.12 per share. On average, 14 analysts polled by Thomson Reuters expected the company to report earnings per share of $0.12 for the quarter. Analysts' estimates typically exclude special items.

Total company sales for the quarter declined 5 percent to $4.94 billion from $5.22 billion in the comparable quarter last year. Analysts were looking for revenue of $4.96 billion for the quarter.

Excluding the impact of store closures in North America during the past year and changes in foreign exchange rate, total company sales increased 0.7 percent during the quarter.

Gross margin increased by 54 basis points on a reported basis.

Sales for the quarter declined 8 percent in North American Stores and Online to $2.11 billion, negatively impacted by about 4 percent due to store closures during the past year and by 3 percent due to changes in foreign exchange rates.

North American Commercial sales grew 3 percent to $2.05 billion, reflecting growth in facilities supplies, breakroom supplies, furniture, and promotional products. This was partially offset by sales declines in ink and toner and paper.

International Operations generated sales of $780 million in the quarter, down 17 percent from last year, primarily driven by a four percent decline in comparable store sales in Europe.

Staples said it secured more than $50 million of annualized cost savings and closed 15 stores in North America during the quarter.

The company has closed 212 stores in North America since the beginning of 2014, as part of a previously announced plan to close at least 225 stores in 2014 and 2015 combined.

Looking ahead to the third quarter, Staples expects adjusted earnings of $0.33 to $0.36 per share and sales to decrease from last year. The company's guidance reflects a sequential increase in the unfavorable impact of the stronger U.S. dollar on sales and earnings.

The Street expects the company to report earnings of $0.36 per share for the quarter.

Staples said it remains on track with the acquisition of Office Depot, which it expects to close by the end of 2015.

SPLS closed Tuesday's trading at $14.15. In Wednesday's pre-market activity, the stock is down $0.35 or 2.47 percent to $13.80.