Staples profit edges up, despite slow US sales

Strong sales of delivered office products to corporate customers at home and overseas helped Staples Inc. post a 1.5 percent increase in its first-quarter profit, and rebound modestly from small profit declines the previous two quarters.

But the slow U.S. economy continued to hurt the world's largest office products supplier, which reported its fourth consecutive quarter of declining sales at established U.S. and Canadian stores, which rely heavily on individual consumers.

Staples' chief executive also suggested Tuesday that his company will be cautious in its hostile bid to acquire Corporate Express NV, and has little appetite to prolong a campaign now being waged directly with the Netherlands-based firm's shareholders.

Framingham, Mass.-based Staples said its net income rose to $212.3 million, or 30 cents per share, in the three months ended May 3, up from a profit of $209.1 million, or 29 cents per share, a year earlier.

The latest profit matched the consensus estimate of analysts surveyed by Thomson Financial, and marked an improvement from Staples' 1 percent decline in its fourth-quarter profit, and a 5 percent third-quarter decline.

Sales rose 6 percent from $4.59 billion a year ago to $4.88 billion in the latest quarter, slightly topping analysts' forecast of $4.83 billion.

Staples shares rose 4 cents to $23.61.

While Staples' delivered office products business and international operations have recently posted gains, the U.S. economic slump continues to hurt retail sales at the chain's more than 2,000 stores. Declines in customer traffic and average order size drove a 6 percent decline in sales at North American stores open at least a year. Robust sales of laptop computers and ink cartridges partly offset declines for office furniture and business machines.

The run of quarterly declines in so-called same-store sales in North America stretches back to last year's second quarter, when a 2 percent decline snapped a six-year string of quarterly gains.

Staples' latest American sales slowdown was partly offset by an 8 percent quarterly sales gain at the firm's North American office products delivery operations catering to business customers. International sales rose 19 percent, but a more modest 8 percent excluding the effects of favorable currency exchange rates.

Staples hopes to boost its overseas and contract office supplies businesses with its $2.47 billion bid to acquire Corporate Express, but analysts have said Staples may have to raise its price another notch to secure a deal. Corporate Express last week rejected Staples' latest price of 8 euros per share, up from an initial offer of 7.25 euros per share in February. Staples took its hostile bid directly to Corporate Express shareholders on Monday.

On Tuesday's earnings conference call with analysts, Staples Chairman and Chief Executive Ron Sargent didn't say whether his company would raise the price yet again. But he suggested Staples won't stretch its campaign beyond the June 27 date it has set for Corporate Express shareholders to tender their shares in support of the deal.

"At this point, we're going to let the shareholders decide if 8 euros is a fair price, or if they would prefer to bet on Corporate Express' turnaround plan for 2011," he said, referring to Corporate Express' plans to remain independent as it tries to rebound from recent disappointing results. "And if the shareholders reject our offer, then we move on."

Staples reaffirmed its full-year profit and sales forecasts, saying it still sees no quick turnaround in the U.S. office products industry, which is a seen as a bellwether of the broader economy.

"There is really not a clear trend or direction at this point, but I do feel like we're in the trough, and the general direction is up from here," Sargent told analysts.

The 76,000-employee company forecasts per-share earnings to increase in the high single digits in percentage terms, with sales rising at a slightly slower rate in the mid-single digits, roughly in line with analysts' expectations.

For the second quarter, Staples expects "flat earnings per share growth." Analysts forecast a profit of 26 cents per share, up 5 percent from a year ago.