Staples 3Q profit drops 43 percent on charges

Staples Inc., the world's largest office supplier, said Tuesday that its third-quarter profit sank 43 percent because of hefty charges from restructuring and the acquisition of European rival Corporate Express.

But excluding the charges, its results - pre-released several weeks ago - still beat Wall Street estimates, despite a dip in retail sales.

For the three months ending Nov. 1, the Framingham, Mass.-based retailer earned $156.7 million, or 22 cents per share, down from $274.5 million, or 38 cents per share, during the same period last year. Excluding items, Staples earned 42 cents, a penny ahead of forecasts of analysts polled by Thomson Reuters.

The charges included $124 million to discontinue the use of trade names Staples obtained from a 2002 acquisition, $9 million from its acquisition of Dutch office supply chain Corporate Express NV and $57 million for tax planning strategies related to the $2.7 billion acquisition of Corporate Express this July.

Revenue rose 35 percent to $7 billion from $5.17 billion a year ago. Analysts predicted revenue of $7.03 billion.

The boost in revenue came from the delivery and international divisions, which recorded increases in revenue largely thanks to sales from Corporate Express.

North American delivery saw its sales grow 61 percent to $2.8 billion.

That caused Standard & Poor's Equity Research analyst Michael Souers to maintain his "Buy" rating on Staples shares.

"We were impressed by relative strength of North American delivery in this challenging climate for businesses," he told investors in a statement.

North American retail sales, meanwhile, fell 6 percent while same-store sales, or sales at stores open at least a year, skidded 8 percent. Same-store sales are a key indicator of retailer performance.

The company said the dip reflected a decline in average order size, slower traffic and weakness in computers, accessories, business machines and furniture sales.

"The economic environment remains challenging and we saw particular weakness during October at the height of the financial crisis," Chairman and Chief Executive Ron Sargent told investors during a conference call. "We know from our experience during previous downturns that if we continue to take care of our customers, invest in the business and control expenses and capital spending, we will come out on the other side even stronger than before."

Meanwhile, the company said business was weak in October and November and on Black Friday, the day after Thanksgiving that was given the moniker because it historically was the day when the surge of traffic pushed retailers into the black.

"We had opted to be less aggressive with our discounting for Black Friday this year and we had better attachment selling," said President and Chief Operating Office Mike Miles. "So our margin dollars were good and about what we expected on that day. But ... it's only one day for us in one channel and it's a lot of consumer business and it's not very important to the quarter overall."

Staples shares rose $1.20, or 7.9 percent, to $16.32 on Tuesday amid broader market gains.

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