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Staples’ Q2 Profits Soar 36%

Framingham, Mass. –
Improved margins, tighter cost management and a strong international showing
helped boost Staples’ fiscal second-quarter net earnings 36 percent to $176
million.

Net sales rose 5.2
percent to $5.8 billion for the three months, ended July 30.

Within its North
American retail segment, sales rose 1.7 percent to $2 billion, while comp-store
sales were flat, reflecting a 1 percent decline in customer traffic. The
decrease was offset by a 1 percent increase in average order size, the company
said.

Operating income
rate for the segment fell 23 basis points to 5.03 percent due to higher
marketing and labor expenses to drive growth in its CE/IT and copy/print
businesses. The decrease was partially offset by improved margins and reduced
rent and occupancy costs.

The No. 1 office-supply
chain opened four U.S. stores and closed two during the quarter, giving it a
total of 1,907 locations across the continent.

“Our second-quarter
results show that our team’s hard work continues to pay off,” said chairman/CEO
Ron Sargent. “Our core business is solid, our growth initiatives are building
momentum, and we delivered better-than-expected earnings and cash flows.”

Credit Suisse
retail analyst Gary Balter agreed. “Today’s results point to a bounce back from
a weak fourth and first quarter,” he wrote in a research note, “and while
challenges remain, results will hopefully remind investors that Staples remains
a leader in a segment that is very much alive.”

Balter added that the
three-player office-supply channel is overstored by at least one specialty
chain, and that Staples would benefit from consolidation regardless if they are
a part of it.

Looking ahead, the
company is forecasting a low single-digit increase in net sales for both the
third fiscal quarter and full year, and plans to invest about $400 million this
year in growth initiatives, systems, the integration of distribution networks
in North America and Europe, remodels and new stores.

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