Staples, Inc. Reports Q1 Sales

Weakest Quarterly Number Since 2003

StaplesMassachusetts-based Staples, Inc., the parent company of Counselor Top 40 distributor Staples Promotional Products (asi/120601), has reported its sales for the quarter ended May 3, 2014, decreased nearly 3% to $5.65 billion. North American total in-store and online sales dipped 5%, while international sales fell 4%. Staples’ net income dropped 44% to $96 million.

“We’re making progress meeting the changing needs of our customers as we reinvent Staples,” said Ron Sargent, CEO of Staples. “Despite a slow start to the first quarter, our results were in line with our expectations and we expect to build momentum throughout 2014.”

Operating margins in Staples’ North American retail and online business declined to 3.5% in Q1. Due to stronger competition and discounting, gross margins fell to 24.9% - the weakest quarterly number the company has reported since 2003. Staples announced in March plans to close up to 225 North American stores by the end of 2015, potentially saving the company $500 million. Staples expects to shutter 80 stores in North America during the second quarter alone.

For Q2 of 2014, Staples, Inc. expects sales to decrease year-over-year compared to the second quarter of 2013. The company is also forecasting Q2 earnings of 9 to 14 cents per share. Analysts, meanwhile, are now projecting Staples to record second-quarter sales of $5.18 billion.

As sales and margins at Staples, Inc. slipped last quarter, the company’s ad specialty segment continued to make gains. “We had a solid quarter for the promotional products category with mid-single digit growth,” Rich Witaszak, general manager of Staples Promotional Products, told Counselor.

Staples Promotional Products generated 2013 North American ad specialty sales of $434 million, a year-over-year increase of 6%, according to Counselor estimates.