Staples shows signs of life

Putting aside all the challenges at Staples – weak demand, activist investor pressure to change its board and an uphill battle to acquire its largest competitor – one aspect of the company’s business is encouraging.

Although the company’s results for the fourth quarter were not good on either an as reported or adjusted basis, the commercial division achieve respectable sales growth and in the fourth quarter was the most profitable of Staples three business segments.

Commercial sales increased 4.9% to slightly more than $2 billion. Operating profits declined to $145 million from $167 million, but that level surpassed the retail division. The least profitable international division incurred the wrath of a strong dollar and saw sales decline 11.1% to $898 million, but only 1% on a constant currency basis. Operating profits actually increased, but the gain was immaterial as operating profits rose to $20 million from $14 million.

Total company sales declined 4% to $5.7 billion and thanks to the inclusion of $484 million in various charges a net loss of $260 million, or 41 cents a share, was worse than the prior year loss of $212 million, or 33 cents a share.

The profit picture at the company looks much better if a $410 million pre-tax charge due to the impaired value of businesses in Australia, China and South America and another $74 million restructuring charge are excluded. On an adjusted basis, Staples produced net income of $198 million, or 31 cents a share that was still below the prior year’s adjusted net income of $212 million, or 33 cents a share.

"During the fourth quarter we achieved strong sales growth in our North American delivery businesses, further optimized our retail store network, and improved profitability in our international business," said Ron Sargent, Staples' chairman and CEO. "Our strategic reinvention is gaining momentum, and in 2015 we expect to benefit from the investments we've made to accelerate sales and earnings growth."

By “optimize,” Sargent means the company closed 169 stores in 2014 in the U.S. and Canada as part of a plan to close at least 225 stores by the end of 2015. The company ended the year with 1,679 stores in North America.

Total sales for the retail division to declined 6.9% to $2.7 billion due to the store closings and a 1% decline in comparable sales that resulted from a 4% decline in same store sales offset by a 9% increase in comparable online sales. The company said sales declines in business machines and technology accessories and computers, were partially offset by growth facilities and breakroom supplies, cut sheet paper, copy and print, furniture, and core office supplies