Staples, Inc. Announces Second Quarter 2016 Performance

 

Staples, Inc. (SPLS) announced today the results for its second quarter ended July 30, 2016. Total company sales for the second quarter of 2016 were $4.8 billion, a decrease of four percent compared to the second quarter of 2015. On a GAAP basis, the company reported a net loss of $766 million, or $1.18 per share. Second quarter 2016 results on a GAAP basis include pre-tax charges of $986 million primarily related to the impairment of European goodwill and other assets and costs associated with the termination of the Office Depot merger agreement.

Excluding the impact of changes in foreign exchange rates, store closures and the sale of the company’s Staples Print Solutions business total company sales for the second quarter of 2016 decreased two percent compared to the second quarter of 2015. Excluding the impact of charges taken during the second quarter of 2016, the company reported non-GAAP net income of $79 million, or $0.12 per diluted share, versus second quarter 2015 non-GAAP net income of $76 million, or $0.12 per diluted share.

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“I’d like to thank the entire Staples team for remaining focused and delivering results that were right in-line with our expectations during a quarter that included the launch of a new strategic plan and a change in leadership,” said Shira Goodman, Staples’ interim Chief Executive Officer. “We are dramatically changing our mindset and operating model as we execute our 20/20 strategy and reposition Staples for sustainable long-term sales and earnings growth.”
Second Quarter 2016 Highlights

Staples Business Advantage, the company’s North American contract business, achieved sales growth of one percent on a GAAP basis and three percent on a local currency basis after excluding a negative impact of approximately two percent due to the sale of the company’s Staples Print Solutions business during the second quarter of 2016.

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Excluding pre-tax charges of $953 million during the second quarter of 2016 and $34 million during the second quarter of 2015, the company improved operating income rate by 14 basis points on a non-GAAP basis.

Grew operating income in North American Commercial by $8 million, or six percent, and improved operating income rate by 40 basis points versus the second quarter of 2015.

Reduced operating losses in International Operations by $8 million, and improved operating income rate by 91 basis points versus the second quarter of 2015.

Closed five stores during the second quarter of 2016 and 19 stores year to date in North America as part of a plan to close at least 50 stores in North America during 2016.

Ended the second quarter of 2016 with $1.7 billion in liquidity, including $775 million in cash and cash equivalents.
North American Commercial sales for the second quarter of 2016 were $2.0 billion, flat compared to the second quarter of 2015. This primarily reflects growth in facilities supplies, promotional products, and breakroom supplies, partially offset by declines in ink and toner, office supplies and paper. Sales growth was negatively impacted by approximately one percent due to the sale of the company’s Staples Print Solutions business during the second quarter of 2016.

Staples Business Advantage achieved sales growth of one percent on a GAAP basis and three percent on a local currency basis after excluding a negative impact of approximately two percent due to the sale of the company’s Staples Print Solutions business.

Operating income rate increased 40 basis points to 7.1 percent compared to the second quarter of 2015. This improvement primarily reflects lower labor costs. This was partially offset by lower product margin rate.

North American Stores and Online sales for the second quarter of 2016 were $2.0 billion, a decrease of six percent compared to the second quarter of 2015. Store closures negatively impacted second quarter 2016 sales growth by approximately one percent. Sales growth was also negatively impacted by approximately one percent due to changes in foreign exchange rates. Comparable sales, which combines comparable store sales and Staples.com sales growth excluding the impact of changes in foreign exchange rates, decreased four percent versus the prior year. Sales declines in ink and toner, business machines, technology accessories and office supplies were partially offset by growth in computers. Comparable store sales decreased five percent, primarily reflecting a decline in customer traffic versus the prior year. Staples.com sales grew one percent in U.S. dollars and on a local currency basis compared to the second quarter of 2015.

Operating income rate decreased 73 basis points to 0.6 percent compared to the second quarter of 2015. This primarily reflects the negative impact of lower sales on fixed expenses in retail stores. This was partially offset by improved profitability in Staples.com.

International Operations sales for the second quarter of 2016 were $721 million, a decrease of seven percent in U.S. dollars or four percent on a local currency basis compared to the second quarter of 2015. This was primarily driven by sales declines in Europe, partially offset by double-digit growth in China.

Operating income rate for International Operations improved 91 basis points to an operating loss of 1.9 percent compared to the second quarter of 2015. This primarily reflects improved profitability in Europe.

Outlook

For the third quarter of 2016, the company expects sales to decrease versus the third quarter of 2015. The company expects to achieve fully diluted non-GAAP earnings per share in the range of $0.32 to $0.35 for the third quarter of 2016. The company’s earnings guidance excludes potential charges related to the company’s strategic plans, including restructuring and related initiatives as well as the ongoing exploration of strategic alternatives for the company’s European operations. For the full year 2016, the company expects to generate approximately $600 million of free cash flow excluding the after-tax impact to operating cash flow of approximately $340 million of charges associated with financing for the proposed acquisition of Office Depot and costs associated with the termination of the Office Depot merger agreement. The company plans to close at least 50 stores in North America in 2016.

Fuente: Seeking Alpha


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