Staples Q2 Results Down, Yet Beat Estimates; Sees Lower Charges In FY14

(RTTNews) - Office supplies retailer Staples Inc. (SPLS) reported Wednesday a decline in second-quarter profit on charges and weak sales. However, adjusted earnings and sales topped analysts' estimates. Further, the company provided third-quarter earnings view, and said it now expects lower charges for the fiscal year 2014.

For the second quarter, net income declined to $81.88 million or $0.13 per share from $102.53 million or $0.16 per share in the prior year.

The latest results included $101 million of pre-tax restructuring and other related charges primarily associated with the closure of 80 stores, as well as the firm's plan to close approximately 40 stores in North America during the second half. These were partly offset by a $67 million net tax benefit primarily related to the resolution of certain tax audits.

Adjusted net income, which excluded items, was $75.07 million, or $0.12 per share. On average, 17 analysts polled by Thomson Reuters expected the company to report earnings of $0.11 per share for the quarter. Analysts' estimates typically exclude special items.

Total company operating income margin decreased 316 basis points from last year to 0.37 percent, while adjusted operating income margin fell 123 basis points to 2.30 percent.

In the quarter, total company sales were $5.22 billion, down 1.8 percent from last year's $5.32 billion. Wall Street expected revenues of $5.16 billion for the quarter.

The sales growth was negatively impacted by approximately one percent due to changes in foreign exchange rates and store closures in North America. Sales excluding these impacts declined 1 percent.

North American Stores and Online comparable store sales, which exclude sales in Staples.com, decreased 5 percent, reflecting lower traffic and a decline in average order size.

Staples.com achieved sales growth of 8 percent.

International Operations' sales dropped 1 percent primarily due to weakness in the company's European online business. Comparable store sales in Europe declined one percent.

Looking ahead for the third quarter, Staples expects adjusted earnings per share in the range of $0.34 to $0.39, and sales to decrease from the same quarter last year. Analysts project the company to report earnings of $0.37 per share and revenues of $5.89 billion for the third quarter.

For the quarter, Staples expects to record pre-tax charges in the range of $40 million to $75 million associated with restructuring, and for the year, it now expects charges of $230 million to $310 million.

The company previously expected to record charges in the range of $240 million to $360 million for the full year.

Ron Sargent, Staples' chairman and chief executive officer, said, "We're accelerating growth in our delivery businesses as customers turn to Staples for more products beyond office supplies. At the same time, we have more work to do to stabilize our retail business, and we're taking action to improve customer traffic, reduce expenses and close underperforming stores."

In pre-market activity, Staples shares were gaining $0.03 or 0.26 percent, and trading at $11.65.