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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