Staples, Inc. (SPLS), the global leader in the supply of office products, recently posted lower-than-expected fourth-quarter 2010 results. The quarterly earnings of 39 cents a share missed the Zacks Consensus Estimate of 41 cents but rose 2.6% from 38 cents earned in the prior-year quarter.
On a reported basis, including one-time items, earnings came in at 38 cents a share, up 18.8% from 32 cents posted in the year-ago quarter.
The Zacks Consensus Estimate had remained stable prior to the earnings release despite 5 out of 17 analysts covering the stock lowering their estimates and 1 analyst raising the projection in the last 30 days.
Staples, which competes with Office Depot Inc. (ODP) and OfficeMax Inc. (OMX), now expects first-quarter 2011 earnings in the range of 30 cents to 32 cents and fiscal year 2011 earnings between $1.50 and $1.60 per share.
Behind the Headline
Staples reported total sales of $6,415.4 million that rose marginally by 0.1% from the prior-year quarter, but fell short of the Zacks Consensus Estimate of $6,488 million. Management indicated that inclement weather had adversely impacted the fourth quarter sales. The office products retailer notified that bad weather hurt its top-line by $70 million and bottom-line by 3 cents a share. However, it hinted that first-quarter 2011 sales are portraying improving trends.
Management now forecasts sales to rise in the low single-digits in the first quarter and to increase in the low to mid single-digits in fiscal 2011.
Gross profit for the quarter dropped 2.1% to $1,720.6 million, whereas gross profit margin contracted 60 basis points to 26.8%. Adjusted operating profit tumbled 10.1% to $434.8 million, whereas operating margin shriveled 77 basis points to 6.8%.
Segment Details
North American Delivery sales climbed 2.7% to $2,490 million and 2.3% in local currency.
North American Retail sales fell 0.4% to $2,562.7 million and 1.5% in local currency. Comparable-store sales slipped 2% compared to the year-earlier quarter. North American Retail opened 9 stores and closed 6 stores, ending the quarter with 1,900 stores.
International sales tumbled 3.2% to $1,362.7 million but remained flat in local currency. During the quarter, the company opened one store in Germany and closed one store in Australia bringing the total number of international stores to 381.
Other Financial Details
Staples generated free cash flows of $1 billion and incurred capital expenditures of $409 million in fiscal 2010. The company ended the year with cash and cash equivalents of $1,461.3 million, long-term debt of $2,014.4 million and shareholders’ equity of $6,951.1 million, including non-controlling interests of $7.5 million. The company also repurchased 18 million shares, aggregating $367.4 million and paid cash dividend of $259 million during the year.
Management now expects capital expenditures of approximately $500 million for fiscal 2011. The company also expects to generate free cash flows of more than $1 billion in 2011.
Currently, we have a long-term ‘Neutral’ rating on Staples. The company holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation, and correlates with our long-term view.
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