Staples net in line but CEO frets about consumer
NEW YORK (Reuters) - Staples Inc (SPLS.O), the largest U.S. office supplies retailer, said on Tuesday that quarterly profit rose 11 percent, but sales slipped in North American stores open more than a year, and its stock fell more than 3 percent.
While the results met Wall Street's estimates, Staples Chief Executive Ron Sargent told investors that he was worried about the current state of consumer spending.
Net income rose to $178.8 million, or 25 cents a share, in the second quarter ended on August 4 from $161.2 million, or 22 cents a share, a year earlier.
The Framingham, Massachusetts-based company said sales had risen 11 percent to $4.3 billion from $3.9 billion, helped by gains in its delivery business and increased demand for laptop computers and software.
Both profit and revenue were in line with analysts' expectations, according to Reuters Estimates.
But comparable-store sales at the North American division fell 2 percent on weakness in furniture and supplies.
CEO Sargent said on a conference call that he was seeing more of a consumer slowdown than a business slowdown.
Last week, the Reuters/University of Michigan Survey of Consumers showed that U.S. consumer sentiment -- which is seen as an indicator of future spending -- fell in August to its lowest point this year.
Small-business consumers, a key Staples market, have also suffered because of the cooling housing market and credit concerns, Sargent added.
"If you're a one-person business or two-person business, you tend to act a little more like a consumer than a business," Sargent said on the call. " ... They're having the same pressure the consumers are having."
Total retail sales in North America, however, climbed 5 percent, and sales at Staples' delivery segment rose 16 percent.
International sales increased 18 percent as the company expanded sales of its private label items in Europe.
"These results reinforce Staples' distinctive strength in delivery, for which it has sharply outperformed competition for many quarters," Goldman Sachs analyst Matthew Fassler wrote in a research note.
"Retail results though, reinforce our concerns about the market ... ," he added. "We expect earnings to exert a modest drag on the stock near-term." Fassler has "neutral" rating on the stock.
Staples said it expected to begin retail operations in India later this year. In July, the company began selling office products to contract customers there.
In May, Staples had said it was viewing the rest of the year cautiously because of soft sales at its North American retail business during the first quarter.
The company said it expected to see 15 percent growth in earnings per share for the third quarter and full year.
Analysts on average were expecting earnings of 41 cents per share for the quarter, up 14 percent from a year earlier before special items, and $1.44 for the year, up 13 percent from the prior 12 months.
Staples forecast low-double-digit sales growth for the third quarter, with slightly lower to flat same-store sales in North America.
For the year, Staples said it expected low-double-digit sales growth.
Shares of Staples were down 80 cents, or 3.4 percent, at $22.51 in morning Nasdaq trade.
(Reporting by Justin Grant and Martinne Geller)
