Staples Inc., the parent company of Top 40 distributor Staples Promotional Products (asi/120601), announced that the company generated $5.1 billion in sales for the first quarter of 2016, a 3% decrease compared to the first quarter of 2015. Net income on a GAAP basis was $41 million, or $0.06 per diluted share, and sales decreased 1% compared to the first quarter last year with the exclusion of foreign exchange rate changes and store closures over the past year. The company’s promotional product business grew by double-digit percentage points in the quarter, Chairman and CEO Ron Sargent said in an earnings call.
“We continue to drive strong growth in categories beyond office supplies and contract during the first quarter,” said Sargent. “We achieved double-digit growth in promotional products and break room supplies and sales were up in the high single-digits in facility supplies. Contract sales in core categories like ink and toner and paper were down in the low to mid-single-digits and sales of office supplies were flat versus Q1 of 2015.”
The first quarter results on a GAAP basis also include pre-tax charges of $66 million related to costs associated with the company’s failed acquisition of Office Depot and store closures, as well as $32 million related to the pending sale of the company’s Print Solutions segment. Closures negatively impacted first quarter 2016 growth by about 2%, and foreign exchange rates impacted sales by about 1%. Meanwhile, declines in the sale of business machines, technology accessories, computers and mobility, and ink and toner were partially offset by growth in furniture, office supplies, facilities supplies, and copy and print.
The company reports it reduced expenses as a percentage of sales by 28 basis points (GAAP), or 44 basis points (non-GAAP) with the exclusion of $24 million in the first quarter of 2016 and $15 million in the same quarter in 2015. The total company operating income rate improved by 27 basis points (GAAP), or 14 basis points (non-GAAP) after discounting charges of $67 million during the first quarter of 2016 and $75 million in the same quarter last year.
In addition, Staples announced it generated operating cash flow of $276 million and invested $44 million in capital expenditures, resulting in free cash flow of $232 million. It also closed 14 stores in North America as part of a previously announced plan to close approximately 50 North American stores in 2016.
Comparable sales, including comparable store sales and Staples.com sales growth while excluding changes in foreign exchange rates, decreased 3% compared to the first quarter of 2015. Comparable store sales decreased 4%, a 2% decline in average order size and a 2% decrease in consumer traffic versus the first quarter of 2015. Sales at Staples.com were flat in U.S. dollars and grew 1% on a local currency basis during the first quarter of this year, while the operating income rate fell 40 basis points to 2.8% compared to the first quarter last year.
Staples Promotional Products ranks first on Counselor’s Top 40 list of suppliers, after its 2014 North American promotional product sales were estimated to be $447 million.