Staples Issues Muted Outlook as Profit Dips

Sales at Staples Inc. climbed for the second straight quarter, but the largest office supply company in the U.S. reported a decline in fourth-quarter profit Tuesday as some charges and delays in big-ticket purchases weighed on results.

Staples also provided a 2010 adjusted profit outlook below analysts' views. Shares fell to $1.86, or 7.2 percent, to $24 in premarket trading.

The company based in Framingham, Mass. is a good measure of how both consumers and small businesses are responding to the economy because it serves both.

With unemployment still hovering near 10 percent, many businesses have been slow to hire, making purchases of big-ticket office-supply items unnecessary. Others are putting spending on hold until economic conditions start to improve more.

Staples' earnings fell 18 percent to $233.9 million, or 32 cents per share, for the period ended Jan. 30. That compares with a profit of $286 million, or 40 cents per share, a year ago.

Removing a $42 million charge related to the settlement of some retail wage and hour class action lawsuits, $20 million in integration and restructuring charges related to Corporate Express, profit was 38 cents per share. Staples acquired Dutch office supply company Corporate Express NV in July 2008 for $2.7 billion.

Analysts surveyed by Thomson Reuters, whose estimates normally exclude one-time items, forecast a bigger profit of 39 cents per share.

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

Last quarter Staples reported its first retail sales increase in five quarters, a modest 1 percent rise.

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.

This figure is a key indicator of a retailers' health as it measures performance at existing stores rather than newly opened ones.

Sales of office supplies slowed during the economic downturn as both consumers and businesses cut back on purchases. But there have recently been signs of improvement as both Office Depot and OfficeMax reported moderating sales declines in the fourth quarter.

Staples reported that its North American delivery sales dipped 1 percent to $2.4 billion, while North American retail sales climbed 8 percent to $2.6 billion.

Overseas sales increased 7 percent to $1.4 billion.

For the year, Staples' earnings declined 8 percent to $738.7 million, or $1.02 per share, from $805.3 million, or $1.13 per share, in the previous year.

Adjusted profit was $1.14 per share.

Full-year sales increased 5 percent to $24.28 billion from $23.08 billion.

Sales at stores open at least a year fell 2 percent for the year.

Looking ahead to 2010, Staples anticipates an adjusted profit of $1.23 to $1.33 per share, with sales up in the low single-digits.

Analysts predict higher earnings of $1.40 per share for the year.

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.