Persistent weakness at Staples reflects lingering economic challenges

A 3% same store sales decline at Staples North American retail units contributed to weaker than expected second quarter results and prompted the company to reduce its full year financial forecast.

Total company sales for the quarter ended August 3, declined 2% to $5.3 billion with the closure of 103 stores in North America and Europe responsible for about half the decline. Profits for the period declined to $104 million, or 16 cents a share, two cents worse than analysts forecast, compared to $125 million, or 19 cents a share the prior year.

"We continue to make progress on our strategic plan to reinvent Staples," said Ron Sargent, Staples' chairman and CEO. "We drove online sales growth and aggressively managed expenses during the second quarter, but this progress was offset by weakness in our retail stores and international businesses."

Same store sales at North American stores fell 3% during the period and total sales fell 2.3% to slightly more than $2.4 billion. The division’s operating income dropped to $100 million from $131 million. Contributing to the weakness were categories such as business machines and technology accessories, ink and toner, and computers. Partially offsetting those declines was growth in tablets, facilities and breakroom supplies, and copy and print services. Staples.com sales grew 3% during the second quarter.

Staples North American commercial division fared slightly better. Sales there fell just 1.3% to slightly more than $1.9 billion while operating income declined to $128 million from $143 million.

Staples international division was its worst performer. Sales declined 8.3% in U.S. dollars and local currencies and the operating loss grew to $20 million from a prior year loss of $15 million. The sales decline was said to reflect broad-based weakness in Europe and Australia. For example, same store sales at European retail units dropped 6% with reduced traffic responsible for most of the decline.

As a result of the weaker than expected results, Staples reduced its full year profit forecast to a range of $1.21 to $1.25 a share, well below the $1.32 analysts had forecast.