Staples Stumbles in Q2, Slashes Guidance for 2013

Andrew Klips |

Shares of Staples Inc. (SPLS) are taking heat in morning trading on Wednesday after the U.S.’s largest office supply chain came up short on profits and sales in the second quarter, prompting the company to slash its guidance for the full year.

For the quarter ended August 3, Framingham, Massachusetts-based Staples reported revenue of $5.31 billion, down 2.2 percent from $5.43 billion in the second quarter last year.  Profits fell to $102.53 million, or 16 cents per share, from $120.43 million, or 19 cents per share, in last year’s quarter.

Wall Street was expecting earnings of 18 cents per share on revenue of $5.37 billion.

The company said that sales were negatively impacted one percent because of closing 103 stores in North America and Europe over the past year.  Soft sales overseas, especially in Europe and Australia, were an anchor on revenue.   International sales fell 8.3 percent compared to Q2 2012 to $946 million.

Tablet sales were up, along with facilities and breakroom supplies, and copy and print services.  Counterbalancing those gains were shrinking sales of business machines, computers, ink and toner.  Shrinking computer sales and increasing tablet sales is common occurrence in recent years, with retailers trying to shift inventory to meet demand in a competitive arena.

Same-store sales, a key growth metric, fell 3 percent as fewer customers came in Staples' stores and those that did spent less per order.  Online sales, a rare bright spot in the release, rose 3 percent compared to last year’s quarter.  Another bright spot was 2.3-percent growth in Staple’s North American commercial business, which sells directly to businesses.

Total operating expenses were trimmed from $1.19 million last year to $1.17 million.

Lower product margins and cost associated with growth initiatives contributed to operating income decreasing 118 basis points to 4.12 percent compared to last year’s quarter.  Gross margin tightened from 26.1 percent to 25.6 percent.

“We continue to make progress on our strategic plan to reinvent Staples.  We drove online sales growth and aggressively managed expenses during the second quarter, but this progress was offset by weakness in our retail stores and international businesses,” said Ron Sargent, chairman and chief executive at Staples.

During the second quarter, the company bought-back 6.4 million shares for an aggregate amount of $100 million.

Looking ahead, Staples cited the declines in the past three months as reason for chopping its sales and profit outlooks for the full 2013 year.  The company now sees a low single-digit decline in sales versus last year, compared to a previously guided low single-digit profit.  Full year earnings are expected in the range of $1.21 to $1.25 per share, down from between $1.30 and $1.35 per share that was stated last quarter.

Shares of SPLS were having a pretty good year through Tuesday’s close at $16.84, advancing almost 50 percent in 2013.  Today’s report carved into those gains with the stock shedding more than 12 percent in morning action to $14.75.

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