Staples 2Q Profit Falls 39 Pct On Acquisition Cost

MAE ANDERSON

NEW YORK (AP) ¿ Office supply chain Staples Inc.'s sales fell less in the second quarter than earlier this year, but the company said Tuesday that its profit dropped 39 percent, mainly because of its acquisition of Dutch chain Corporate Express.

Sales at Staples stores open at least a year, a key industry metric known as same-store sales, fell 5 percent in the second quarter as average order size fell. The chain's same-store sales fell 8 percent the previous quarter.

"We are feeling like maybe the economy is coming back a bit," CEO Ronald Sargent said. "We have seen sequential improvement now for the last ... three or four quarters. And I think we think that's a good indicator of the future health of our business."

The Framingham, Mass.-based chain's sales rose 9 percent to $5.53 billion from $5.07 billion, partly helped by the acquisition, but that was slightly below Wall Street's forecast of $5.55 billion in revenue.

Staples said sales of big-ticket items such as business machines and furniture slowed, but that was partially offset by increased sales of computers, ink and paper.

The nation's largest office supply retailer said its net income for the period that ended Aug. 1 fell to $92.4 million, or 13 cents per share, compared with $150.2 million, or 21 cents per share, a year ago.

Excluding a $30 million integration and restructuring expense, it earned 16 cents per share, meeting the expectations of analysts surveyed by Thomson Reuters. Analysts typically exclude one-time items.

Staples acquired Dutch office supply company Corporate Express NV in July 2008 for $2.7 billion.

Office supply retailers have come under pressure during the recession as consumers and small businesses tighten their spending. Staples' North American Delivery segment reported 18 percent sales growth to $2.3 billion, while its overall North American retail revenue dipped 5 percent to $2 billion.

The company's international sales surged 21 percent to $1.2 billion even with the drag of the stronger dollar. European same-store sales slipped 3 percent.

As the back-to-school season kicks into high gear, Staples said shoppers are seeking low prices.

"Value is top of mind for our customers and this year's back-to-school plan was designed to be responsive to our customers' appetites for great deals," said Chief Operating Officer Mike Miles.

Specials like a ream of paper for a penny are drawing in customers, he added.

The company did not provide sales or earnings forecasts for the year.

Rival Office Depot Inc. reported last month that its second-quarter loss widened, missing analyst expectations, as its sales fell steeply and the company shuttered stores and worked on a turnaround plan.

"The gap between Staples' (same-store sales) and competitors' (same-store sales) ¿ which were down 18 percent for Office Depot and 13 percent for Office Max ¿ continues to widen," said Deutsche Bank analyst Mike Baker, who rates the company "buy." ''Europe comps fell only 3 percent, a significant improvement from down 14 percent last quarter."

Shares rose 16 cents to $22.35 during morning trading.

___

Associated Press writer Michelle Chapman in New York contributed to this report.

Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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