2nd UPDATE: Staples Net Up 3.2% Despite International Slump
February 29 2012 - 1:23PM
Dow Jones News
Staples Inc.'s (SPLS) earnings rose 3.2% in the fiscal fourth
quarter, held back by international operations that took a step
back in 2011, prompting layoffs in the key weak spots of Europe and
Australia.
Shares in the office-supplies retailer fell 7.8% to $14.76 in
recent trading. The stock had risen 5% Tuesday, drafting off Office
Depot Inc.'s (ODP) stock surge after the smaller rival predicted
continuing profitability improvement this year and
better-than-expected sales.
Wednesday, Staples reported a 4.6% decline in international
sales driven by a 9% slump in European same-store sales, and
executives said its European business needs to be fixed. Tuesday,
Office Depot also noted increasing business pressures across
Europe.
Part of the fix includes layoffs, which Staples said it began
earlier this month in both Europe and another sore spot, Australia.
Chief Operating Officer Michael A. Miles said on a conference call
with analysts that the reduction involved roughly several hundred
people. The company said it does not break out headcount numbers by
region.
"Unfortunately we probably took a step back in 2011" on overhead
costs in Europe, Miles said, adding that the lost ground would make
it harder for the company to reach its long-term goal of getting
international operating margins to 7.5% from the 3% of previous
years.
However, Miles noted Europe is mostly battling very weak sales
in technology categories like computers and printers while the
office supplies and contract businesses are performing better,
comparatively.
Sales in Europe and Australia had been weak in the fiscal third
quarter as well, and Staples expects the soft European demand of
the second half to persist this year.
While it also predicted slow growth in the U.S., Staples
guidance for the new fiscal year was in line with analysts'
estimates. Including the effects of an extra selling week,
severance from the job cuts and strong-dollar pressure, the company
projected full-year earnings per share would increase in a high
single-digit percentage on sales growth in a low single-digit. The
consensus estimates from analysts surveyed by Thomson Reuters
indicated earnings-per-share growth of about 8.8% and sales growth
of 1.4%.
Despite the problems abroad, Staples's larger North American
operations improved.
In the latest period, North American retail sales rose 2.7% as
same-store sales increased 2%. Those are modest gains but still
represent the highest growth rates in nearly two years. Same-store
sales in the latest period benefited from higher average order size
and a slight increase in customer traffic. Sales in the North
American delivery division were up 1.5% from a year earlier.
Office suppliers like Staples, the largest chain in the U.S.,
are operating in an intensely competitive retail environment, a
challenge compounded by declining demand for office products as
governments contend with budget cuts and traditional supplies
increasingly evolve into electronic forms.
Tuesday, Office Depot reported its profitability-focused
initiatives helped it swing to the black in the fourth quarter and
said the strategies still have "a lot of leg left." Some of them
echo Staples maneuvers, such as improving in-store customer
experience and remodeling to reduce average store size.
While Office Depot and OfficeMax Inc. (OMX) both have indicated
they would focus on margin this year, Staples appears more willing
to drive sales.
"We've got to get the top line going again," Chairman and Chief
Executive Ronald L. Sargent said when discussing the company's
plans for new product categories.
For the quarter ended Jan. 28, Staples posted a profit of $283.6
million, or 41 cents a share, up from a year-earlier profit of
$274.7 million, or 38 cents a share. Sales inched up 0.7% to $6.46
billion.
In November, the company had called for earnings of 39 cents to
43 cents a share on sales ranging from flat to low-single-digit
growth. That outlook was generally below analysts' expectations at
the time.
Gross margin was flat at 26.8%.
-By Joan E. Solsman, Dow Jones Newswires; 212-416-2291;
joan.solsman@dowjones.com
--Mia Lamar contributed to this report.
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