UPDATE 4-Staples warns of weak sales on low demand for core office supplies

Wed Aug 20, 2014 11:56am EDT

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By Devika Krishna Kumar

Aug 20 (Reuters) - Staples Inc warned that its sales could fall in the current quarter as it sells fewer computers and core office supplies such as ink, toner and paper in North America amid stiff competition from online retailers and big-box chains.

Shares of the largest U.S. office supply retailer fell as much as 4 percent. The stock was among the most traded on the Nasdaq on Wednesday.

Staples has been spending heavily on advertising to promote itself as a seller of products other than traditional office supplies.

Sales in its North America retail business, under which it sells core office supplies as well as breakroom items and copy and print products, fell 6 percent in the second quarter.

The business accounted for about 43 percent of Staples' total sales in the quarter.

Chief Executive Ron Sargent said quarterly sales of computer and technology accessories fell in double-digit percentage terms. "These categories represent about 20 percent of our total retail sales mix and drove about two-thirds of our same-store sales decline during the second quarter," he said on a conference call.

North America same-store sales, excluding Staples.com, fell 5 percent.

The company, facing stiff competition from mass merchants such as Wal-Mart Stores Inc and online retailers such as Amazon.com Inc, has announced several promotions for the back-to-school season.

Under one of the offers, if a customer can find an item sold by Staples at a lower price elsewhere, the company will not only match that price but also offer a 10 percent discount.

Aggressive discounting weighed on Staples' gross margins, which fell to 25.2 percent from 25.5 percent.

"With the consumer remaining value-focused, promotional activity is likely to remain elevated again this holiday (shopping season)," JP Morgan analysts wrote in a note.

Staples said in March it would close 140 of its underperforming North America stores this year.

Of these, it closed 80 stores in the second quarter ended Aug. 2.

Earlier this month, smaller rival Office Depot Inc warned of weak sales this year as it struggles to arrest a decline in sales in its North American retail business.

Staples forecast a profit of 34-39 cents per share for the third quarter ending November. Analysts on average were expecting 37 cents per share, according to Thomson Reuters I/B/E/S.

Net income fell 20 percent to $81.9 million, or 13 cents per share, in the second quarter. Excluding items, the company earned 12 cents per share.

Total sales fell 1.8 percent to $5.22 billion.

Analysts on average had expected a profit of 11 cents per share and revenue of $5.16 billion.

Staples shares were down 1.8 percent at $11.41 in noon trading. Up to Tuesday's close, the stock had fallen by more than a quarter this year. (Editing by Kirti Pandey)

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