Staples 4th-quarter profit slips; sales rise for the second consecutive quarter

Staples 4Q profit falls; issues muted outlook

NEW YORK — Staples Inc., the largest U.S. office supply retailer, said sales to both consumers and small businesses improved in the fourth quarter but gave a 2010 outlook that disappointed investors.

Shares fell more than 10 percent Tuesday. Staples also said fourth-quarter profit fell, partly on one-time charges.

With unemployment still hovering near 10 percent, many businesses and consumers have held back on buying office supplies. But sales are improving, Staples said Tuesday. CEO Ron Sargent said sales in North American retail stores open at least a year — a key retail measurement that excludes growth from newly opened stores — grew for the first time in 10 quarters. And sales to small businesses rose for the first time in six quarters, although overall North American business delivery edged down.

“Price and value remain top of mind,” Sargent said. Consumers responded well to deals on laptops and other technology products and discounts on ink and paper, he said.

Earnings fell 18 percent to $233.9 million, or 32 cents per share, for the period ended Jan. 30. Removing charges related to the settlement of some labor lawsuits and integrating Dutch office supply company Corporate Express NV, profit was 38 cents per share. That was still a penny short of the 39 cents per share expected by analysts surveyed by Thomson Reuters, whose estimates normally exclude one-time items.

Revenue grew 4 percent to $6.41 billion, ahead of the $6.3 billion Wall Street anticipated.

Sales at stores open at least a year rose 3 percent on improving traffic and strong sales of computers, ink and toner. This was offset by softness in business machines and furniture.

Staples’ sales mirrored reports last month by smaller rivals Office Depot and OfficeMax, who last month both reported moderating sales declines in the fourth quarter.

Janney Capital Markets analyst David Strasser described Staples’ earnings in a note to clients as “two steps forward, one step back,” with better North American results offset by weaker international business.

North American delivery sales, roughly 40 percent of the company’s total revenue, dipped 1 percent to $2.4 billion, while North American retail sales, also about 40 percent of revenue, climbed 8 percent to $2.6 billion.

Overseas sales, the rest of its business, increased 7 percent to $1.4 billion, though sales fell 6 percent in local currency. Losses in the company’s print-systems division in Europe and business in China hurt results. The company has worked to improve weak results in the sectors — cutting 11 percent of staff in the print-systems division and replacing executives in China, but results remain weak.

For the year, Staples’ earnings declined 8 percent to $738.7 million, or $1.02 per share, while sales rose 5 percent to $24.28 billion.

The company predicts a first-quarter adjusted profit of 25 cents to 27 cents per share, with sales up in the mid single-digits. Wall Street expects 27 cents per share, according to Thomson.

For the year, the company, based in Framingham, Mass., predicts an adjusted profit of $1.23 to $1.33 per share, with sales up in the low single-digits. Analysts expect $1.40 per share.

The 2010 outlook disappointed investors, who sent shares down $2.61, or 10.1 percent, to close at $23.25. The stock has traded between $14.35 and $26 over the past year.