Staples Q1 Sales Slip As It Pursues Office Depot Acquisition

As Staples commented on its acquisition of Office Depot, the retailer announced that net income for the first quarter ended May 2 was $59 million, or nine cents per diluted share, versus net income of $96 million, or 15 cents per diluted share, in the 2014 period. With the impact of charges taken during the first quarter excluded, the company maintained that adjusted net income was $109 million, or 17 cents per diluted share, versus $115 million, or 18 cents per diluted share, in the period last year.

Adjusted earnings per diluted share paced a Zacks Investment Research analyst average estimate.

In North American stores and in its e-commerce business, Staples reported sales of $2.37 billion in the first quarter versus $2.63 billion in the year-earlier period, with comparable sales coming in down 3%. Comp store sales were down 5% but comparable sales were up 3% on a constant currency basis. Operating income in the division was $75 million versus $93 million in last-year’s quarter.

Staples closed 28 stores in North America during the first quarter and has closed 197 North American stores since the beginning of 2014, as part of a plan to shutter at least 225 locations in 2014 and 2015 combined.

Company-wide charges taken in the first quarter included a pre-tax $45 million tally related to restructuring and related activities, $22 million of impairment primarily related to information technology assets, $15 million related to the acquisition of Office Depot partially offset by a pre-tax gain of $3 million related to asset sales, Staples stated.

Total company sales were $5.26 billion, down 6.9% compared to the first quarter of 2014, Staples noted. Total company sales declined less than one percent during the first quarter excluding the effects of store closures in North America during the past year and changes in foreign exchange rates, Staples added. Operating income was $98 million versus $159 million in the 2014 period or $173 million versus $183 million adjusted.

In a conference call, Ron Sargent, Staples’ chairman and CEO, stated that Staples continues the work of acquiring Office Depot, filing a form S-4 with the United States Securities and Exchange Commission that became effective last week, awaiting next month’s Office Depot annual meeting where shareholders will vote on the merger agreement, and working through the regulatory review process, with a second request for information from the U.S. Federal Trade Commission expected. It also is developing integration plans that will allow Staples “to hit the ground running” on final approval and closing of the acquisition, Sargent said, with the goal of quickly achieving synergy targets with rapid decision making and high accountability.