Lower sales on account of store closures and lower product
margins took a toll on the second-quarter fiscal 2013 earnings of
). The company's second-quarter earnings of 16 cents a share
missed the Zacks Consensus Estimate by a couple of cents and
decreased 15.8% year over year.
Total sales decreased 2.2% year over year to $5,314.7 million
and missed the Zacks Consensus Estimate of $5,381 million. 103
store closures in North America and Europe in the past 12 months
hindered sales during the quarter.
Gross profit decreased 4.2% year over year to $1,359.5
million, while gross margin contracted approximately 50 basis
points to 25.6%. Operating profit plunged 17.3% to $187.7
million, whereas operating margin contracted 65 basis points to
3.5% during the quarter.
The office supply retailers are going through a rough patch as
decline in business and consumer spending in the wake of the
global meltdown has resulted in sluggish demand for big-ticket
items such as business machines, furniture and other durable
Moreover, increased competition from online rivals like
) is taking a toll on their profitability. Amid such a scenario,
the company's close competitors,
Office Depot Inc
) decided to merge their businesses in order to capture a wider
market and generate incremental revenues.
Given the near-term challenges, the company lowered its
earnings and sales guidance for fiscal 2013. The company now
expects earnings to be in the range of $1.21 - $1.25, down from
its earlier guidance range of $1.30 - $1.35. Moreover, total
revenue is expected to decline in the low single-digits compared
with its earlier guidance of low single-digits increase in
North Stores and Online
, which include its retail stores and Staples.com business in
U.S. and Canada, marked a decline of 2.3% to $2,422 million,
reflecting a dip in sales of business machines, ink & toners,
computers and technology accessories. Moreover, 54 store closures
in the past 12 months negatively impacted sales.
Despite challenges, the segment witnessed increased sales of
tablets, facilities and breakroom supplies, and copy and print
During the quarter, comparable-store sales declined 3% on
account of a 1% decline in average order size and a 2% decrease
in traffic. Sales through Staples.com, increased 3% year over
year. Operating income decreased 23.7% year over year to $100
million, whereas operating margin contracted 118 basis points to
4.1%. The decline reflected the company's increased investment in
its .com business and lower product margins.
North American Commercial
, which includes its Contract operations in the U.S. and Canada,
witnessed a 1.3% rise in sales to $1,946 million due to the
growth witnessed in the facilities and breakroom supplies,
tablets and furniture, partially offset by decreases in office
supplies and print solutions. Operating income decreased
10.5% to $128 million, while operating margin contracted 85 basis
points to 6.6%, reflecting increased marketing expenses.
waned 8.3% to $946 million, reflecting lower sales in Europe and
Australia. Comparable store sales in Europe marked a decline of
6% on account of lower traffic. The segment reported an operating
loss of $20 million wider than a loss of $15 million incurred in
the year-ago quarter.
Other Financial Details
Staples ended the quarter with cash and cash equivalents of
$1,186.6 million, long-term debt of $1,000.3 million and
shareholders' equity of $6,037.8 million.
Year-to-date, Staples generated operating cash flow of about
$348 million and incurred capital expenditures of $124 million,
resulting in a free cash flow of $224 million. During the
quarter, Staples repurchased 6.4 million shares for $100 million.
Currently, Staples holds a Zacks Rank #2 (Buy), which could
witness a downgrade in the near term.
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