FRAMINGHAM, Mass.--(BUSINESS WIRE)--May. 16, 2012-- Staples, Inc. (Nasdaq: SPLS) announced today the results for its first quarter ended April 28, 2012. Total company sales for the first quarter of 2012 were $6.1 billion, a decrease of one percent in U.S. dollars and flat on a local currency basis compared to the first quarter of 2011. Net income for the first quarter of 2012 decreased six percent year over year to $187 million. Diluted earnings per share, on a GAAP basis, decreased four percent to $0.27 from $0.28 achieved in the first quarter of 2011.

During the first quarter of 2012, the company recorded $28 million of pre-tax expenses primarily related to headcount reductions in North America, Europe and Australia, as well as the settlement of a contractual dispute associated with the acquisition of Corporate Express. These expenses negatively impacted the company’s first quarter 2012 diluted earnings per share, on a GAAP basis, by approximately $0.03.

“In North America we continue to build momentum in categories beyond office supplies while trends in our international business remain soft,” said Ron Sargent, Staples’ chairman and chief executive officer. “Our plans remain on track to grow both sales and earnings during 2012.”

On a GAAP basis, first quarter 2012 operating income rate decreased 43 basis points to 5.21 percent. This decrease primarily reflects severance costs related to headcount reductions, as well as deleverage of fixed expenses on lower sales in International Operations, partially offset by reduced marketing and supply chain expense.

The company generated operating cash flow of $147 million and invested $52 million in capital expenditures, resulting in free cash flow of $95 million during the first quarter of 2012. The company returned $75 million to shareholders through cash dividends and repurchased 5.9 million shares for $93 million during the first quarter of 2012. At the end of the first quarter, the company had $2.3 billion in liquidity, including $1.2 billion in cash and cash equivalents.

North American Delivery

North American Delivery sales for the first quarter of 2012 were $2.6 billion, an increase of two percent compared to the prior year period. This primarily reflects double-digit sales growth in facilities and breakroom supplies and strong growth in copy and print and promotional products. Operating income rate increased three basis points to 7.87 percent compared to the first quarter of 2011. This increase primarily reflects supply chain efficiencies, partially offset by a pre-tax expense of $8 million related to headcount reductions and the settlement of a contractual dispute associated with the acquisition of Corporate Express, as well as lower product margins.

North American Retail

North American Retail sales of $2.3 billion were essentially flat compared to the first quarter of 2011. Comparable store sales for the first quarter of 2012 were flat, as average order size and customer traffic were unchanged versus the prior year. Operating income rate decreased 43 basis points to 7.18 percent compared to the first quarter of 2011. This decrease primarily reflects a pre-tax expense of $4 million related to headcount reductions and the settlement of a contractual dispute associated with the acquisition of Corporate Express. The decline also reflects ongoing investments to drive growth in categories beyond office supplies, partially offset by reduced marketing and depreciation expense. During the first quarter, the company opened three and closed six stores in the U.S. and opened one and closed one store in Canada, ending the first quarter of 2012 with 1,914 stores in North America.

International Operations

Sales in International Operations for the first quarter were $1.2 billion, a decrease of eight percent in U.S. dollars and a decrease of five percent on a local currency basis compared to the first quarter of 2011. These results reflect weak sales in Australia and Europe, including a six percent decline in comparable store sales in Europe. Compared to the first quarter of 2011, operating income rate decreased 225 basis points to an operating loss of 1.53 percent. This decrease primarily reflects a pre-tax expense of $16 million related to headcount reductions and the settlement of a contractual dispute associated with the acquisition of Corporate Express. The decline also reflects deleverage of fixed expenses on lower sales in European Retail and Australia, as well as lower product margins in Europe. During the first quarter, the company opened one and closed three stores, ending the first quarter with 376 stores in International Operations.

Outlook

The company’s 2012 outlook is unchanged and assumes continued slow growth in the U.S. economy and a soft demand environment in Europe. Including the impact of the 53rd week in fiscal 2012, the company expects full year sales to increase in the low single-digits compared to the prior year and full year diluted earnings per share to increase in the high single-digits versus adjusted diluted earnings per share of $1.37 achieved in 2011. The company anticipates its effective tax rate for the full year will be 32.5 percent and expects to generate more than $1 billion of free cash flow in 2012.

Presentation of Non-GAAP Information

This press release presents certain results for 2011 and 2012 both with and without the impact of fluctuations in foreign currency exchange rates, and certain results without the impact of the tax refund in 2011. The presentation of results that excludes these items, as well as the presentation of free cash flow, are non-GAAP financial measures that should be considered in addition to, and should not be considered superior to, or as a substitute for, the presentation of results determined in accordance with GAAP. Non-GAAP financial measures which have not been reconciled here within, or reconciled in previous public disclosures, are provided below. Management believes that the non-GAAP financial measures better enable management and investors to understand and analyze our performance by providing meaningful information relevant to events of a non-recurring nature that impact the comparability of underlying business results from period to period. Management uses these non-GAAP financial measures to evaluate the operating results of the company’s business against prior year results and its operating plan, and to forecast and analyze future periods. Management recognizes there are limitations associated with the use of non-GAAP financial measures as they may reduce comparability with other companies that use different methods to calculate similar non-GAAP measures. Management generally compensates for the limitations resulting from the exclusion of these items by considering the impact of these items separately in GAAP as well as non-GAAP results. In addition, when first disclosed, management presents the most comparable GAAP measures ahead of non-GAAP measures and provides a reconciliation that indicates and describes the adjustments made. For a reconciliation of previously disclosed non-GAAP financial measures, please see the “Financial Measures and Other Data” section of the Investor Information portion of www.staples.com.

Today's Conference Call

The company will host a conference call today at 9:00 a.m. (ET) to review these results and its outlook. Investors may listen to the call at http://investor.staples.com.

About Staples

Staples is the world’s largest office products company and a trusted source for office solutions. The company provides products, services and expertise in office supplies, copy & print, technology, facilities and breakroom, and furniture. Staples invented the office superstore concept in 1986 and now has annual sales of $25 billion, ranking second in the world in eCommerce sales. With 88,000 associates worldwide, Staples operates in 26 countries throughout North and South America, Europe, Asia and Australia, making it easy for businesses of all sizes and consumers. The company is headquartered outside Boston. More information about Staples (Nasdaq: SPLS) is available at www.staples.com/media.

Certain information contained in this news release constitutes forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995 including, but not limited to, the information set forth under “Outlook” and other statements regarding our future business and financial performance. Any statements contained in this news release that are not statements of historical fact should be considered forward-looking statements. You can identify these forward-looking statements by the use of the words “believes”, “expects”, “anticipates”, “plans”, “may”, “will”, “would”, “intends”, “estimates”, and other similar expressions, whether in the negative or affirmative. Forward-looking statements are based on a series of expectations, assumptions, estimates and projections which involve substantial uncertainty and risk, including the review of our assessments by our outside auditor and changes in management’s assumptions and projections. Actual results may differ materially from those indicated by such forward-looking statements as a result of risks and uncertainties, including but not limited to: global economic conditions could adversely affect our business and financial performance; our market is highly competitive and we may not be able to continue to compete successfully; if the products and services that we offer fail to meet our customer needs, our performance could be adversely affected; we may be unable to continue to enter new markets successfully; our expanding international operations expose us to risks inherent in foreign operations; failure to manage growth and continue to expand our operations successfully could adversely affect our financial results; our effective tax rate may fluctuate; fluctuations in foreign exchange rates could lead to lower earnings; we may be unable to attract, train, engage and retain qualified associates; our quarterly operating results are subject to significant fluctuation; if we are unable to manage our debt, it could materially harm our business and financial condition and restrict our operating flexibility; we could incur significant goodwill impairment charges; our expanded offering of proprietary branded products may not improve our financial performance and may expose us to intellectual property and product liability claims; problems in our information systems and technologies may disrupt our operations; compromises of our information systems or unauthorized access to confidential information or our customers’ or associates’ personal information may materially harm our business or damage our reputation; our business may be adversely affected by the actions of and risks associated with third-party vendors and service providers; various legal proceedings may adversely affect our business and financial performance; failure to comply with laws, rules and regulations could negatively affect our business operations and financial performance; and those factors discussed or referenced in our most recent quarterly report on Form 10-Q filed with the SEC, under the heading “Risk Factors” and elsewhere, and any subsequent periodic or current reports filed by us with the SEC. In addition, any forward-looking statements represent our estimates only as of the date such statements are made (unless another date is indicated) and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.

This presentation refers to growth rates in local currency so that business results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of Staples' business performance. To present this information, current period results for entities reporting in currencies other than U.S. dollars are converted into U.S. dollars at the prior year average monthly exchange rates.

Free cash flow is not defined under U.S. GAAP. Therefore, it should not be considered a substitute for income or cash flow data prepared in accordance with GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines free cash flow as net cash provided by operating activities less capital expenditures. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. The Company believes free cash flow is a useful measure of performance and uses this measure as an indication of the Company's ability to generate cash and invest in its business.

Source: Staples, Inc.

Staples, Inc.
Media Contact:
Kirk Saville, 508-253-8530
or
Owen Davis, 508-253-8468
or
Investor Contact:
Chris Powers, 508-253-4632
or
Kevin Barry, 508-253-1487