Staples Reports Flat Earnings as Cost Control Takes Center Stage

Staples Inc., the No. 2 U.S. office products retailer, on Tuesday said profits for the first quarter were flat with a year ago and forecast no earnings growth in the second quarter as it scales back its U.S. store expansion plan to control costs.

Although the Framingham, Mass.-based company said it expects second-quarter and full-year earnings to be in line with analysts' expectations, it said it is planning more conservatively for the remainder of the year, given the current state of the U.S. economy.

"Our plans for the year have been built assuming no improvement in the macroeconomic environment, and we will continue to relentlessly drive efficiencies while maintaining our levels of customer service to enhance the long-term health of the business," Staples Chairman and Chief Executive Thomas Stemberg said in a statement.

For the second quarter, Staples predicted it would earn 8 to 10 cents a share. Analysts polled by Thomson Financial/First Call forecast a profit of 9 to 11 cents a share, with a mean estimate of 10 cents. The company earned 10 cents a share in the year-ago second quarter.

Staples said it sees full-year earnings in line with analysts' estimates.

"We are cautiously optimistic for the remainder of the year, have built a very conservative plan, and are confident that we will deliver a respectable financial performance even in this tough economy,'' Stemberg said.

In its North American retail business, Staples said it had further reduced its U.S. store expansion plans for the year and now expects to add only 100 stores, 10 fewer than originally planned.

In addition, the company said a new store format is being rolled out and extensive new merchandising efforts have been put in place to "energize'' the business.

Staples also said it has implemented a new in-store labor model to control labor costs.

For the first quarter, ended May 5, Staples, the No. 2 U.S. office products retailer behind Office Depot Inc., said its net income was $40 million, or 9 cents a share, flat with year-earlier results.

Analysts had been expecting a profit of 7 to 9 cents a share, with a mean estimate of 9 cents, according to First Call.

Shares of Staples, which have outperformed the Standard & Poor's retail index by 13 percent over the past year, closed at $15.52 on the Nasdaq stock market on Monday. The stock's 52-week price range is $18.81 to $10.25.

First-quarter sales rose 4 percent, to $2.67 billion from $2.56 billion a year ago, while sales at stores open at least one year — same-store sales — rose 1 percent.

"The first quarter was challenging for most retailers, and Staples was no exception,'' Stemberg said. "By aggressively controlling costs in this difficult economic environment, we delivered earnings expectations, despite the shortfall in expected revenues.''

Staples said its e-commerce operations,, saw revenues rise 182 percent to $213 million in the first quarter and, for the first time, achieved an operating profit before corporate allocated general and administrative expenses.