Staples 4Q net rises but misses expectations

AP News
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Posted: Mar 02, 2011 11:49 AM
Staples 4Q net rises but misses expectations

Staples Inc.'s fourth-quarter results missed expectations as winter storms caused shoppers to stay home most January weekends.

Staples Inc., based in Framingham, Mass., also offered weak first-quarter earnings guidance Wednesday. Shares slipped slightly in midday trading.

Still, analysts say the No. 1 office supplier is still in a better position than its rivals to take advantage of the slowly recovering economy.

CEO Ron Sargent said results were in line with the company's plan until the Christmas holiday weekend, when a big snowstorm hit the East Coast. Winter storms disrupted business somewhere nearly every weekend after that through the beginning of February.

"January is typically our biggest and it's also our most important month of the year, and this year, the bad weather and subsequent promotional efforts to drive sales proved hard to overcome," he said.

The weather cost Staples an estimated $70 million in sales and 3 cents per share in net income, the company said. Markdowns to clear excess inventory during the quarter hurt earnings by an additional 2 cents per share.

But Sargent said sales have recovered in the first quarter of 2011.

For the three months ended Jan. 29, net income rose 18 percent to $274.7 million, or 38 cents per share. That compares with $233.9 million, or 32 cents per share, in the same period last year. Excluding an integration and restructuring expense, net income was 39 cents per share.

Analysts expected net income of 41 cents per share, according to FactSet.

Revenue rose less than 1 percent to $6.42 billion. Analysts expected $6.46 billion.

Revenue in stores open at least a year fell 2 percent. The measure is considered a key gauge of a retailer's fiscal health because it excludes stores that open or close during the year.

Office suppliers are slowly recovering as shoppers and small businesses go back to spending more on office supplies.

Revenue in its North American delivery segment, which serves small business, rose 3 percent to $2.5 billion. Retail revenue rose less than 1 percent to $2.6 billion. Sales of computers were weak, offset by stronger sales of paper and services.

International revenue fell 3 percent to $1.4 billion, hurt by weakness in the U.K. and Netherlands.

Staples said introducing Amazon.com's Kindle e-book reader in the quarter was a success, although it did not give specifics.

The company also plans to expand its cell phone offerings in some stores and sell more tablet computers, introducing the Motorola Xoom, Dell Streak and BlackBerry PlayBook in April and the HP TouchPad in June.

For the fiscal year, net income rose 19 percent to $881.9 million, or $1.21 per share, from $738.7 million, or $1.02 per share.

Revenue edged up 1 percent to $24.55 billion from $24.28 billion.

Looking forward to the current fiscal first quarter, Staples expects net income of 30 cents to 32 cents per share, while analysts expect 33 cents per share. It expects revenue to rise by a low-single-digit percentage.

For the full year, Staples predicts a low- to mid-single digit increase in revenue and net income of $1.50 to $1.60. Analysts expect net income of $1.55 per share.

Despite the revenue miss in the fourth quarter, Staples is still better positioned to capitalize on the improving economy than the smaller Office Depot and OfficeMax, Citi Investment Research analyst Kate McShane said in a note to investors. Both retailers last month reported fourth-quarter revenue declines.

Staples is "best positioned to navigate (a) muted recovery," she wrote.

Shares slipped 17 cents to $20.69 in midday trading.