Tags: Staples | Sales | Estimates | Demand

Staples Cuts Earnings Outlook After Profit Falls 32% on Weak Global Demand

Wednesday, 15 Aug 2012 07:06 AM

Staples' net income tumbled 32 percent in the second quarter absent a large tax refund from a year ago, on top of disappointing sales in North America and weakness in beleaguered Europe.

The office supply chain fell short of Wall Street expectations and cut its full-year guidance, sending shares on a more than 17 percent slide before the market opened Wednesday.

Sales of computers, software, and basic office supplies were soft. Computer sales have been pressured by the introduction to many offices of the computer tablet and other more mobile devices.

Traffic at stores slid 2 percent, while the average order size was flat compared with a year ago.

For the period ended July 28, the chain earned $120.4 million, or 18 cents per share. That compares with $176.4 million, or 25 cents per share, a year earlier.

The prior-year period included a $21 million cash tax refund, but even removing that windfall from a year ago, Staples did not post numbers close to those projected by analysts.

Analysts surveyed by FactSet forecast earnings of 22 cents per share, and the company's stock tumbled $2.28 to $11.15.

Revenue fell to $5.5 billion from $5.82 billion, down 6 percent, just shy of expectations.

While sales of computers and other goods dropped, sales of mobile phones and accessories, facilities and break room supplies and copy and print climbed.

North American retail sales slipped 3 percent, while revenue at stores open at least a year declined 2 percent. That metric is a key indicator of a retailer's health because it excludes the volatility from stores recently opened or closed.

Revenue for the North American delivery segment, which caters to businesses, dipped 1 percent mostly because of the loss of two large contract customers.

Internationally, sales dropped 18 percent. Revenue at European stores open at least a year fell 9 percent.

"The weakness in Europe was not a surprise, but the deterioration in the U.S. was more significant than anticipated," David Strasser of Janney Capital Markets wrote in a client note.

The analyst said the international sales decline, coupled with an operating loss of $22 million, was troubling "because we don't know what Staples can really do to fix this business."

Staples Inc. cut its full-year adjusted earnings forecast due to the weaker-than-expected second-quarter results. It now anticipates a low single-digit percentage rise in its full-year earnings when compared with 2011's adjusted earning s of $1.37 per share. The company previously predicted a high single-digit percentage increase.

Analysts expect earnings of $1.47 per share, which would be a 7 percent increase from last year.

Staples Inc. has stores in 26 countries in North and South America, Europe, Asia and Australia.

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2012-06-15
Wednesday, 15 Aug 2012 07:06 AM
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