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Staples Reports Q1 Financial Results

(5/24/2011)

Counselor Top 40 distributor Staples Promotional Products (asi/120601) posted "double-digit sales growth" in its fiscal first quarter of 2011, according to its general manager, Rich Witaszak.

The rise in ad specialty revenues considerably outpaces the overall sales of Staples Inc., the parent company of Staples Promotional Products, which reported year-over-year growth of 1.9% to $6.17 billion. "It's our expectation that our promotional sales for the rest of this year will be in line with our first quarter growth," Witaszak told Counselor.

Despite a strong first quarter from its promotional arm, Staples Inc. only generated a 5% Q1 profit increase, falling short of analysts' projections. Accordingly, the Massachusetts-based company dropped its profit outlook for the year, immediately sending its shares plummeting by 16%.

"We think it's prudent to adjust our view of the business and to adopt a more conservative outlook," said John Mahoney, Staples' chief financial officer. "We now expect total company sales to be flat to slightly positive for Q2."

While its delivery and Canadian business components were solid, Staples said its first quarter product demand was weak in several areas including computer media, printers and furniture.

According to the company's financial statement, Q1 gross margin narrowed to 26.51% from 26.73% a year ago, while selling and administrative expenses expanded to 20.59% of sales. The company said it's in the process of shifting its focus to become a leader in technology for small businesses. "Our growth initiatives gained momentum during the first quarter," said Ron Sargent, Staples' CEO. "We're reallocating a portion of our marketing resources to build awareness of new offerings in technology products for mobile professionals."

For the fiscal year of 2010, Staples Inc. reported its total company sales increased by 1% to $24.5 billion. By comparison, Staples Promotional Products, the largest distributor in the ad specialty industry, generated $364.4 million in sales last year, as estimated by Counselor.



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