Financial Results from Staples
May 20, 2008
Staples, Inc. (Nasdaq: SPLS) announced the results for its first quarter ended May 3, 2008. Total company sales increased six percent to $4.9 billion compared to the first quarter of 2007. Net income rose two percent year over year to $212 million, and earnings per share, on a diluted basis, increased three percent to $0.30, from the $0.29 achieved in the first quarter of last year.
North American Retail sales grew two percent in the first quarter, and comparable store sales decreased six percent versus 2007, reflecting declines in customer traffic and average order size. North American Delivery continued its industry-leading growth, increasing sales eight percent versus last year’s first quarter. Total International sales increased 19 percent in US dollars, benefiting from a $72 million foreign currency impact, and increased eight percent in local currency. International comparable store sales increased four percent versus 2007.
“We are pleased to deliver solid results in a challenging quarter,” said Ron Sargent, Staples’ chairman and chief executive officer. “We continue to gain share while we invest in growth ideas to strengthen our market position.”
Highlights for the first quarter include:
Total Company
- Achieved record first quarter sales of $4.9 billion.
- Operating income rate declined 44 basis points to 6.59 percent, reflecting operating expense deleverage offset by a modest improvement in gross profit rate.
- Opened 38 new stores worldwide, ending the first quarter operating 2,076 stores.
- Generated first quarter free cash flow of $225 million after $74 million in capital expenditures, compared to free cash flow of $115 million for the same period last year.
- Repurchased 2.8 million shares of stock for $65 million during the first quarter and spent $231 million to pay its annual cash dividend.
North American Retail- Achieved record first quarter sales of $2.4 billion.
- Achieved all-time high customer satisfaction scores.
- Opened 35 new stores, ending the first quarter with 1,773 stores in North America.
- Reported a 103 basis point decline in operating income rate to 6.99 percent versus 2007, reflecting deleverage in rent and operating expense despite tight expensecontrol and increased product margin rate.
- Reduced average inventory per store by five percent.
North American Delivery- Achieved record first quarter sales of $1.7 billion, reflecting continued success in Contract account acquisition and share of wallet initiatives throughout NorthAmerican Delivery, including Staples Promotional Products, Staples Industrial, and copy and print services.
- Reported a 4 basis point decline in operating income rate to 9.49 percent versus 2007, reflecting improvement in our supply chain and product margin rate more than offset by investment in growth initiatives.
International- Achieved record first quarter sales of $756 million, reflecting mid-teens growth in U.S. dollars in Europe.
- European Retail comparable store sales rose four percent, led by double-digit comparable stores sales in the UK.
- Sustained momentum in China with sales nearly doubling versus the prior year’s first quarter.
- Drove continued profit improvement with operating income rate up 71 basis points year over year to 3.15 percent.
- Opened two stores in the UK and one store in Belgium, ending the first quarter with 271 stores in Europe and 32 stores in China.
Outlook
The company expects the weak economic climate to continue throughout 2008. Based on this expectation, and continued investment in growth initiatives, the company’s previous full year outlook remains unchanged. The company expects to achieve mid single-digit sales growth and high single-digit earnings per share growth for 2008, excluding the previously disclosed impact to 2007 earnings for the $38 million pre-tax charge ($24 million after-tax or $0.04 per diluted share) related to the settlement of California wage and hour class action litigation. The company expects flat earnings per share growth for the second quarter. The company’s guidance for future periods excludes any potential impact relating to its previously announced proposal to acquire all of the outstanding capital stock of Corporate Express N.V.
