Staples reported a 4% North American same-store sales decline in Q1, but saw growth in its online and commercial units.
Total company sales for the first quarter were $5.65 billion, a 2.8% decline on last year (representing a $160 million sales decline), but a 2% drop after taking into account currency differences and the impact of store closures.
Adjusted operating profit was down 36% to $183 million while adjusted net profit fell 32% to $115 million, about $19 million below analyst consensus – although the top line came in slightly ahead of estimates.
“We’re making progress meeting the changing needs of our customers as we reinvent Staples,” said CEO Ron Sargent.
“Despite a slow start to the first quarter, our results were in line with our expectations and we expect to build momentum throughout 2014.”
North American Stores and Online (NASO)
Q1 sales were $2.63 billion, a 4.9% decline, although currency had a negative impact of about 2% and store closures hit sales by about 1%.
Sales declines in business machines, technology accessories, core office supplies, ink and toner, and computers were partially offset by growth in facilities and breakroom supplies and copy and print.
Comparable store sales fell 4% due entirely to lower customer traffic.
Staples.com sales achieved underlying sales growth of 6.1%, and represented about 22% of total NASO sales.
Online growth was attributed to increased conversion on the company’s desktop and mobile websites, as well as growth from its expanded assortment in categories beyond office supplies.
Staples approved the closure of 112 specific stores as part of its 225-store closure plan announced in March and closed 16 stores in the first quarter. The number of 2014 store closures is expected to be around 140.
About 600 stores in the US were re-merchandised with the expanded ‘beyond office supplies’ offering.
Q1 operating profit at NASO fell 46.5% to $93 million, while operating margin dropped 270 basis points to 3.5%.
North American Commercial (NAC)
Q1 NAC sales rose 0.7% year on year to $2.06 billion.
Growth in facilities and breakroom supplies, furniture and promotional products was partially offset by declines in ink and toner, paper and core office supplies.
NAC operating profit fell by 9.3% to $136 million and operating margin was down 74 basis points to 6.6%.
International sales fell 3.9% to $964 million, driven by weakness in the European delivery business.
Comparable store sales in Europe were essentially flat, reflecting approximately a 2% increase in average order size offset by approximately a 1% decrease in traffic.
The International division’s Q1 operating loss widened by $14 million year on year to $25 million, attributed to the negative impact of fixed costs on lower sales in Europe, lower product margin in Australia and increased marketing expense as a percentage of sales, partially offset by improved product margin in Europe.
Janney analyst David Strasser called the Q1 results a “reality check” and said it showed that Staples still had “much more work to do”.
Staples’ share price was down about 11% in pre-market trading.