Staples 2nd-quarter net income rises 40 percent as lower costs help offset flat revenue

Cost cuts help Staples 2nd-quarter net income rise

NEW YORK — Americans and small businesses spent cautiously on office supplies, but belt-tightening by Staples Inc. helped its second-quarter net income rise 40 percent.

CEO Ron Sargent said Tuesday that despite the “challenging” backdrop, business seems to be slowly improving even as the economy remains uncertain.

“What we are seeing is slow steady improvement in our business, and I think the whole economy hinges on getting people back to work over time,” he said. “It’s going to be a slow, steady slog from here on out, and at Staples all we can do is focus on things we can control.”

The nation’s biggest office supply chain said Tuesday that net income for the three months ended July 31 rose 40 percent to $129.8 million, or 18 cents per share, from $92.4 million, or 13 cents per share, last year.

Net income was 20 cents per share excluding a restructuring charge. That matched analyst expectations, on average, according to a poll by Thomson Reuters.

Revenue was nearly flat at $5.53 billion. That was shy of the $5.64 billion analysts predicted.

As consumers and businesses cut back on all but the most-needed office supplies, Staples has been trying to take customers from competitors in other areas. The company said its “facilities and break room” category, which provides things like toilet paper and snacks, mainly to its corporate clients, was doing well.

At retail stores, revenue rose 2 percent to $2 billion.

Software, copy and print and tech services had strong revenue, while sales of bigger-ticket items like business machines and furniture were weak.

Sargent said the back-to-school season is competitive and focused on sales and special offers, much like last year, although he said the verdict is still out since there are still several weeks to go.

Staples has increased the number of coupons, other deals, and laptop and software bundles to drive back-to-school sales.

Revenue at stores open at least a year was flat as about more customers shopped in stores but spent less.

In the company’s North American delivery segment, which serves businesses, revenue rose 2 percent to $2.4 billion. The company brought in more customers but that was offset by lower spending from existing customers.

International revenue fell 6 percent to $1.2 billion.

Lower costs were due to improved product profit margins, a lower stock-option expense and lower amortization and delivery and distribution expense.

The company, based in Framingham, Mass., lowered the top end of its 2010 outlook due to a higher tax rate. It now expects $1.25 to $1.29 per share, excluding items, from prior guidance of $1.25 to $1.33 per share. Analysts expect net income of $1.33 per share. Analyst estimates typically exclude one-time items.

For the third quarter, it expects revenue to rise in the low single digits and net income of 39 cents to 41 cents per share. Analysts expect 43 cents per share.

The company reiterated its outlook for a modest economic recovery in the second half of the year.

OfficeMax earlier this month also reported second-quarter revenue was nearly flat, but its net income exceeded expectations. Still, the company forecast slight revenue declines for the second half of the year due to the uncertain economy.

Office Depot’s second-quarter revenue fell 4 percent.

Shares fell 71 cents, or 3.6 percent, to close at $18.94. The stock has traded between $18.82 and $26 during the past year.