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Staples Profit Falls 38% as Businesses Curb Spending

Tuesday 25 August 2009

Staples Inc., the world’s largest retailer of office supplies, said second-quarter earnings fell 38 percent as companies bought fewer desks and chairs and profit margin narrowed.
Net income dropped to $92.4 million, or 13 cents a share, from $150.2 million, or 21 cents, a year earlier, Framingham, Massachusetts-based Staples said today in a statement. Sales rose 9 percent to $5.53 billion in the 13 weeks ended Aug. 1, helped by the 2008 acquisition of Corporate Express NV.
As companies cut jobs and equipment purchases in the worst U.S. economy since the Great Depression, Staples is adding more- profitable technical services such as computer repair. Gross margin, the fraction of sales remaining after subtracting the cost of goods sold, shrank to 25.7 percent from 26.6 percent.
“The only number that’s going to give anyone any concern is the gross margin,” Scott Tilghman, an analyst at New York- based Hudson Square Research Inc., said in a telephone interview. Tilghman estimated a gross margin of 26.2 percent.
Excluding integration and restructuring expenses, profit totaled 16 cents a share, in line with the average of 15 analysts’ estimates compiled by Bloomberg.
Staples fell 40 cents, or 1.8 percent, to $21.79 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have gained 22 percent this year.
Furniture Falls
The size of the average purchase fell because of lower demand for business machines and office furniture. Furniture sales dropped more than 30 percent, President Michael Miles said on a conference call. Computer sales improved, as did revenue from EasyTech, the technical-services offering, he said.
Sales at U.S. and Canadian stores open at least a year fell 5 percent. Tilghman had estimated a 6 percent decline.
“We are feeling like the economy is coming back a bit,” Chairman and Chief Executive Officer Ron Sargent, 53, said on the call.
Revenue in the quarter fell 14 percent when compared with a year-earlier total that includes Corporate Express’s sales from May and June 2008, before the takeover.

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