Staples 1Q Profit Down 5.6% On European Weakness
05/16/2012| 11:27am US/Eastern
--Though North America's business strengthened a bit, demand abroad softened, echoing a broader trend
--Concerns about European sales have knocked shares of retailers with exposure in the region
--Staples has moved to cut jobs abroad to improve profitability in those markets
(Updates throughout with details from the company's conference call)
By John Kell and Mia Lamar
Staples Inc.'s (>> Staples, Inc.) fiscal first-quarter earnings fell 5.6% as the office-supply giant became the latest retailer to grapple with weak demand in Europe, which masked a stronger performance in North America.
Office suppliers such as Staples, the largest chain in the U.S., are operating in an deeply competitive retail climate marked by declining demand for office products as governments contend with budget cuts and traditional supplies evolve into electronic forms.
Though the company's business strengthened a bit in North America, demand abroad softened in the latest quarter. That echoes a broader trend among retailers and consumer-product companies, including jewelry and accessory maker Fossil Inc. (>> Fossil, Inc.) and shoe makers Deckers Outdoor Corp. (>> Deckers Outdoor Corp) and Wolverine World Wide Inc. (WWW), which have all recently cited weak demand in Europe in their latest quarterly reports.
Concerns about European sales have knocked shares of retailers expanding or with heavy exposure in the region. Shares of Staples, which derives roughly 20% of sales from international markets, were down 6.3% to $13.83 in recent trading as top-line results fell short of Wall Street's expectations.
Staples has moved to cut jobs internationally, eliminating 300 positions in Europe and Australia during the first quarter, as the company has sought to improve profitability in those markets. Chief Executive Ron Sargent told analysts Staples was taking ownership for the poor performance outside North America and has focused on getting the business back on track.
On a positive note, Staples affirmed its full-year outlook, a guidance that incorporates the assumption of continued slow growth in the U.S. economy and soft demand in Europe.
For the quarter ended April 28, Staples posted a profit of $187.1 million, or 27 cents a share, compared with a year-earlier profit of $198.2 million, or 28 cents a share. The latest period included expenses for staff reductions and the settlement of a contractual dispute that negatively impacted earnings by roughly 3 cents a share.
Sales slipped 1.1% to $6.1 billion. Analysts expected earnings of 30 cents a share on $6.18 billion in sales, according to a survey conducted by Thomson Reuters.
Gross margin edged down to 26.4% from 26.5%.
North American retail sales were roughly unchanged from a year earlier at $2.32 billion as same-store sales came in flat. Sales in the North American delivery division edged up 1.7% to $2.56 billion, helped by double-digit sales growth in facilities and breakroom supplies and strong growth in copy and print and promotional products.
The company's international operations posted an 8% decline in sales to $1.23 billion amid weak performance in Europe, where same-store sales dropped 6%.
Though Staples has faced a competitive retail climate for years, management doesn't see a need to reposition how it sells. Sargent says while Staples wants to serve all needs for office supplies, his company recognizes a bulk of future growth will come from delivering those goods, as well as selling products and services outside core office supplies. International results also need to improve to contribute to the company's future.
"I think the retail network is very important [to] the big picture strategy for the company," he said. "We plan to stick with it."
-By John Kell and Mia Lamar, Dow Jones Newswires; 212-416-2480; firstname.lastname@example.org