Staples grows profits despite soft sales

Framingham, Mass. -- Fourth-quarter sales at Staples increased slightly to $6.4 billion, net income increased 17% to $275 million, and earnings per share increased 19% to 38 cents courtesy of a favorable tax benefit of six cents.

Staples chairman and CEO said he was proud of all the company achieved in 2010.

“We got back to growing the top-line, achieved solid operating margin expansion and earnings growth, and generated over a billion dollars in free cash flow. While the fourth quarter was challenging primarily due to the impact of winter storms, sales have recovered in the first quarter of 2011. Our business is healthy, we’re investing in the right things, and our growth initiatives are gaining traction and positioning us well for a strong 2011.”

For the full fiscal year ended Jan. 29, total company sales increased 1% to $24.5 billion, net income increased 19% to $882 million and earnings per share increased 19% to $1.21.

Looking at Staples three major divisions, the company said the performance of its 1,900 store North American retail division highlights ongoing weakness for small and medium size businesses. Same-store sales decreased 2% in the fourth quarter, although the company indicated bad weather impacted those results and computer and peripheral products were soft. Total sales decreased slightly to $2.6 billion. The retail division achieved full-year sales of $9.5 billion, which was an increase of 2% compared with 2009, but that growth was driven by the addition of 41 new stores as comps declined 1%.

Staples North American Delivery business grew sales at a faster rate than retail, advancing 3% to $2.5 billion for the fourth quarter, while full year sales increased 2% to $9.8 billion. Despite the top-line improvement, operating margins declined slightly for the quarter to a still healthy level of 8.31%, but increased slightly to 8.54% for the year.

The company’s third major division, International, reported sales of $1.4 billion that were flat when measured in local currencies, while operating margins increased slightly to 4.21%, well below the rate of profitability achieved by the company’s North American Retail and Delivery businesses. The international division includes 381 stores.

Going forward, Staples has incorporated further modest improvement in economic conditions into its expectations for a first quarter sales increase in the low single digits and earnings per share of 30 cents to 32 cents. For the full year 2011, the company expects sales to increase in the low to mid single-digits with earnings per share in the range of $1.50 to $1.60 for the full year. Capital expenditures are planned at $500 million, compared to $409 million last year. The company said it expects to generate more than $1 billion in free cash flow, comparable with last year.