Staples profit jumps but shares fall
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By Justin GrantNEW YORK (Reuters) - Staples Inc. , the world's largest office supplies retailer, on Tuesday reported first-quarter sales that fell short of analysts' estimates and gave a cautious outlook for the remainder of the year, sending its shares down more than 5 percent."We understand that our choppy top-line results in North American retail for (the first quarter) are likely to cause concern about what we are seeing in the economy," Chief Executive Ron Sargent said on a conference call."The consumer and the very small business customer who are important components of our retail business are feeling pressure."The company said quarterly profit rose 12.4 percent, meeting Wall Street's expectations, driven by higher sales of laptop computers and continued growth in its copy and print service businesses.Net income increased to $209 million, or 29 cents a share, from $186 million, or 25 cents, a year earlier.The Framingham, Massachusetts-based company said quarterly sales rose 8 percent to $4.59 billion from $4.24 billion a year ago.Analysts, on average, expected the retailer to earn 29 cents a share on $4.7 billion in sales, according to Reuters Estimates."The softish results and tempered outlook that Staples announced this morning reflect a more challenging environment for the company's retail division," UBS retail analyst Brian Nagel wrote in a research note."We believe that the recent move down in (Staples) shares should largely discount for today's news from the company," wrote Nagel, who has a "neutral" rating on Staples stock.Comparable sales at its North American division rose 1 percent. But the company said sales of its core office supplies were flat, adding that sales of furniture and business machines were weak.Total North American retail sales rose 3 percent.Staples said it was taking a "cautious" approach regarding expectations for the rest of the year because a "softer-than-expected" sales environment at its North American retail business during the first quarter.Sanford Bernstein analyst Colin McGranahan lauded Staples' performance amid a rough retail atmosphere."While the tempered guidance reflects a weaker environment, we believe first-quarter results reflect (Staples') ability to execute well in a tough environment," McGranahan wrote in a research note."And while the company guided to the low end of its forecast, the share's recent underperformance suggests the stock may have already been discounting the more cautious outlook," wrote McGranahan, who has an "outperform" rating on the stock.Looking ahead, the company expects 15 percent to 20 percent earnings growth for the second quarter and full year, and sees earnings at the low end of its forecast of $1.43 to $1.49 per share for fiscal 2007.The company also said it expects double-digit total sales growth for the second quarter and full year.At its North American retail division, Staples expects low single-digit comparable-sales growth for the second quarter and full year.Earlier this month, rival OfficeMax Inc. , the world's third-largest office supplies retailer, posted a lower-than-expected quarterly profit.Staples also announced it acquired privately held American Identity, a global distributor of corporate branded products.Staples shares were trading down about 4 percent at $24.61 on the Nasdaq.
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