Retrenching Staples Beats Wall Street In Q1

Following the court issued ruling that quashed its proposed merger with Office Depot, Staples reported declines in net income and sales while making some progress in its retrenchment and strategic goals.

Staples posted first quarter net income of $41 million, or six cents per diluted share, versus $59 million, or nine cents per diluted share, in the year-earlier quarter. Adjusted net income was $109 million, or 17 cents per share, identical to last year’s quarter. Staples exceeded a MarketBeat published analyst average estimate by a penny.

Total company sales for the quarter were $5.1 billion, down 3.1% year over year. Operating income was $108 million versus $98 million on a GAAP basis and $175 million versus $173 million on an adjusted basis for the previous year’s first quarter.

In North America, in store and online, Staples operating income was $62 million versus $75 million in the year-earlier quarter. Comparable sales fell 3% with store comps down 4%, including a 2% decline in average order size and a 2% decline in traffic. Staples.com comps gained 1% on a local currency basis. North American total sales slipped 5.2% to $2.25 billion, the company noted.

Staples asserted that store closures cost first quarter sales growth two percentage points and foreign exchange rate fluctuations cost one percentage point. Sales growth in furniture, office supplies, facilities supplies and copy and print partially offset declines in business machines, technology accessories, computers and mobility, and ink and toner, Staples said. Lower sales on fixed expenses and lower product margin rate in Staples.com hurt operating income, an effect partially offset by reduced marketing expense, improved retail product margin rate and savings related to a reduction in headcount year over year.

“We delivered a solid first quarter, and we made good progress on our critical priorities,” said Ron Sargent, Staples’ chairman and CEO. “We grew sales in key categories beyond office supplies, drove growth in our mid-market contract business, and improved customer conversion in stores and online. We plan to build on our momentum as we pursue our strategic plan to enhance long-term value.”