Staples Net Falls 32% on Weak International Sales; Cuts Year View
08/15/2012| 08:16am US/Eastern
--Unexpected weakness in North America combines with ongoing international woes
--Company lowers full-year guidance
--Shares fell 13% in premarket trading
(Updates with further details and context; adds share movement in second paragraph)
By Joan E. Solsman and Melodie Warner
Staples Inc.'s (>> Staples, Inc.) fiscal second-quarter earnings fell 32% from a year-earlier period bolstered by a tax refund as an unexpected downturn in North American sales trends combined with continuing sluggishness abroad.
Shares in the company fell 13% in premarket trading to $11.75, its lowest price since 2003, as the largest office-supply chain in the U.S. also lowered its full-year guidance.
Wednesday, Staples said it expects per-share earnings to rise in a low single-digit percentage on flat sales this year. Staples had previously forecast a high single-digit rise in per-share earnings on low single-digit sales growth.
Chairman and Chief Executive Ron Sargent said sales trends in North America were softer than expected.
"We're taking a hard look at each of our businesses, and we plan to make significant changes to improve results," Mr. Sargent said in a release. "We're also building a plan to reallocate resources, take advantage of our best growth opportunities, and drive increased cost savings."
Major changes across all its businesses would expand Staples's restructuring onto its home turf in North America, joining smaller rivals Office Depot Inc. (>> Office Depot Inc) and OfficeMax Inc. (>> OfficeMax Incorporated) in comprehensively revamping its businesses. Staples had previously cut 300 positions in Europe and Australia, as well as consolidate business units in Europe to centralize and simplify them.
While Staples previously cut 200 U.S. and Canadian jobs, analysts have suggested the company may need to take bolder action to protect profits in a continually challenging sector. Office-supplies chains have faced a competitive retail climate for years as governments contend with budget cuts, unemployment persists at high levels and traditional supplies evolve into electronic forms.
North American retail sales fell 2.7% to $1.99 billion. Same-store sales were down 2%, the first time in a year the company failed to clearly outperform its smaller competitors on the metric.
Sales in the North American delivery division declined 0.8% to $2.41 billion following the previously announced loss of two large contract customers in the third quarter of last year.
International sales dropped 18%, or 10% on a local currency basis, and same-store sales fell 9% in Europe. The international struggles come as no surprise. Staples international business hasn't posted same-store sales growth since 2008, and Office Depot's weak international performance in its second quarter reported last week suggested challenges for Staples there too.
For the quarter ended July 28, Staples reported a profit of $120.4 million, or 18 cents a share, down from $176.4 million, or 25 cents, a year earlier. The year-earlier quarter included a $21 million cash tax refund. Excluding the item, adjusted earnings were 22 cents a year ago.
Sales dropped 5.5% to $5.5 billion, or fell 3.1% on a local currency basis.
Analysts polled by Thomson Reuters had most recently forecast earnings of 22 cents a share on revenue of $5.72 billion.
Gross margin shrank to 26% from 26.5%.
Write to Joan E. Solsman at email@example.com and Melodie Warner at firstname.lastname@example.org
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