OMX Officemax Incorporated

Staples, Inc. (SPLS), the global leader in the supply of office products, recently posted lower-than-expected first-quarter 2011 results. The quarterly earnings of 28 cents a share missed the Zacks Consensus Estimate of 32 cents and remained flat compared with the prior-year quarter.

The Zacks Consensus Estimate had remained stable prior to the earnings release, with none of the analysts revising their projections in the last 30 days.

Behind the Headlines

Staples reported total sales of $6,172.9 million that rose by 1.9% from the prior-year quarter, and came ahead of the Zacks Consensus Estimate of $6,198 million.

Gross profit for the quarter rose slightly by 1.1% to $1,636.4 million, but gross margin contracted 22 basis points to 26.5%. Operating profit tumbled 9.1% to $348.3 million, whereas operating margin shriveled 69 basis points to 5.6%.

Segment Details

North American Delivery sales climbed 2% to $2,511.6 million and 1.5% in local currency.

North American Retail sales inched up 0.7% to $2,328.1 million but dropped marginally by 0.5% in local currency. Comparable-store sales slipped 1% compared to the year-earlier quarter. North American Retail opened 5 stores and closed 4 stores, ending the quarter with 1,901 stores.

International sales climbed 3.9% to $1,333.2 million but fell 2.1% in local currency. During the quarter, the company closed 3 stores in Europe bringing the total number of international stores to 378.

Other Financial Details

Staples generated free cash flows of $148 million, whereas incurred capital expenditures of $63 million during the quarter. The company ended the year with cash and cash equivalents of $932.5 million, long-term debt of $1,876.9 million and shareholders’ equity of $7,274 million, including non-controlling interests of $7 million.

The company also repurchased 7.1 million shares, aggregating $147 million and paid cash dividend of $70.9 million during the quarter.

Management now expects capital expenditures of approximately $400 million for fiscal 2011 down from $500 million forecasted earlier. The company also expects to generate free cash flows of more than $1 billion in 2011.

Management Guided

Given lower-than-expected results, the company took a cautious stance and trimmed its fiscal 2011 earnings guidance.

Staples, which competes with Office Depot Inc. (ODP) and OfficeMax Inc. (OMX), now expects the second quarter earnings in the range of 18 cents to 20 cents and fiscal 2011 earnings between $1.35 and $1.45 per share. Earlier, the company had projected fiscal 2011 earnings between $1.50 and $1.60 per share.

The current Zacks Consensus Estimates for second quarter is 25 cents and for fiscal 2011 is $1.54 per share. However, following the recent management’s guidance we could witness a fall in the Zacks Consensus Estimates in the coming days with analysts tweaking their estimate to better align with the outlook.

Management now forecasts sales to be flat to marginally positive in the second quarter and to increase in the low single-digits in fiscal 2011.

Currently, we have a long-term Neutral rating on Staples. The company holds a Zacks #4 Rank, which translates into a short-term Sell recommendation.

 
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