Staples Inc. Announces Third Quarter 2013 Performance

On November 20, 2013, Staples Inc., Framingham, Mass., announced the results for its third quarter ended November 2, 2013. Total company sales for the third quarter of 2013 were $6.1 billion, a decrease of four percent compared to the third quarter of 2012. Third quarter 2013 total company sales growth was negatively impacted by one percent due to 107 store closures in North America and Europe during the 12 months preceding the third quarter of 2013. The foreign exchange impact from the stronger U.S. dollar also negatively impacted total company sales growth by one percent during the third quarter of 2013.

“It’s been a year since we announced our strategic reinvention, and we’re evolving our business to meet the changing needs of customers,” said Ron Sargent, Staples’ chairman and chief executive officer. “We continue to face weak demand for core office supplies, but we’re driving growth online and in new categories, while aggressively managing expenses.”

Third Quarter 2013 Reinvention Highlights

  • Launched the biggest refresh to Staples.com and Staples.ca since 2005
  • Added data science expertise and a Silicon Valley presence with the acquisition of Runa
  • Increased assortment on Staples.com by nearly 50 percent with the addition of 70,000 products
  • Rolled out new collaborative contract selling model in North America
  • Achieved 2013 cost reduction goal of $150 million ahead of schedule
  • Continued to aggressively reduce expenses and streamline organization in Europe

On a GAAP basis, the company reported third quarter 2013 income from continuing operations of $220 million, or $0.34 per share, compared to a loss of $569 million, or $0.85 per diluted share, achieved in the third quarter of 2012. Excluding the impact of $64 million of pre-tax charges related to employee severance and other associated restructuring activities during the third quarter of 2013, the company reported non-GAAP income from continuing operations of $274 million, or $0.42 per diluted share, compared to third quarter 2012 non-GAAP income of $310 million, or $0.46 per diluted share.

Total company non-GAAP operating income rate declined 82 basis points to 7.05 percent compared to non-GAAP operating income rate of 7.87 percent achieved during the third quarter of 2012. This decline primarily reflects lower product margins, the negative impact of fixed expenses on lower sales, and investments related to the company’s strategic initiatives, partially offset by savings related to headcount reductions, reduced marketing expense, and lower equity compensation.

The company generated operating cash flow of $875 million and invested $204 million in capital expenditures year to date, resulting in year to date free cash flow of $671 million. The company repurchased 6.8 million shares for $104 million during the third quarter of 2013, and has

North American Stores and Online
Sales for the third quarter of 2013 were $3.0 billion, a decrease of five percent compared to the third quarter of 2012. Third quarter 2013 sales growth was negatively impacted by approximately one percent due to 59 store closures during the 12 months preceding the third quarter of 2013, net of estimated sales transfers to remaining stores. The sales decline also reflects weakness in office supplies, business machines and technology accessories, as well as computers, partially offset by growth in tablets, facilities and break room supplies, and copy and print services. Comparable store sales, which exclude sales in Staples.com, decreased three percent, reflecting a three percent decline in traffic and flat average order size versus the prior year. Staples.com sales grew three percent during the third quarter of 2013. The sales increase reflects increased customer traffic and stable customer conversion, partially offset by lower average order size. Operating income rate decreased 88 basis points to 9.47 percent compared to the third quarter of 2012. This decline primarily reflects increased costs related to growth initiatives in Staples.com, and the negative impact of fixed expenses on lower sales, partially offset by reduced retail store labor expense and marketing expense. During the third quarter of 2013, the company closed 7 stores in the U.S.

North American Commercial
Sales for the third quarter of 2013 were $2.1 billion, an increase of one percent compared to the third quarter of 2012. This primarily reflects growth in facilities and break room supplies, tablets, and furniture, partially offset by declines in office supplies, paper, and ink and toner. Operating income rate decreased 126 basis points to 7.60 percent compared to the third quarter of 2012. This decline primarily reflects investments in sales force and marketing costs to drive growth.

International Operations
Sales in International Operations for the third quarter of 2013 were $1.0 billon, a decrease of eight percent in U.S. dollars, as well as on a local currency basis, compared to the third quarter of 2012. The sales decline reflects weakness in European delivery, a negative impact of approximately two percent due to 48 European store closures during the 12 months preceding the third quarter of 2013, and to a lesser extent, weakness in Australia. Comparable store sales in Europe declined two percent with modest declines in both traffic and average order size. Operating income rate increased 31 basis points to 0.16 percent compared to the third quarter of 2012. Excluding $16 million of accelerated Australia tradename amortization during the third quarter of 2012, operating income rate decreased 111 basis points. This decline primarily reflects the negative impact of fixed expenses on lower sales, as well as lower product margins in Australia and European delivery, partially offset by reduced marketing and rent expense.

Discontinued Operations
During the third quarter of 2013, the company recorded an after-tax loss from discontinued operations of $85 million related to its European Printing Systems business. This includes a loss of $81 million related to the completion of the sale of this business during the third quarter of 2013, which was primarily non-cash in nature.

Outlook
The company expects full year 2013 sales to decrease in the low single-digits compared to 2012 sales on a 52-week basis of $23.9 billion. The company expects full year 2013 non-GAAP diluted earnings per share from continuing operations to be in the range of $1.21 to $1.25. The company’s full year non-GAAP diluted earnings per share estimate excludes the charges incurred during the third quarter of 2013 related to severance expense and other associated restructuring activities. The company expects to generate more than $900 million of free cash flow and plans to continue repurchasing its common stock through open-market purchases during 2013.

For the full release or for more information about Staples Inc., visit the company’s investors’ site.

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