Staples, Inc., parent company of Top 40 distributor Staples Promotional Products (asi/120601), generated total sales of $4.1 billion during the first quarter of 2017 – a 5% decline compared to the same quarter the prior year. That’s according to an earnings statement the Framingham, MA-based company released early Tuesday, which further revealed that gross profit dipped 3% to $1.078 billion. On a non-GAAP basis, earnings per-diluted share from continuing operations dropped from $0.19 to $0.17.
Nonetheless, Staples executives said that there were a number of important highlights during the first quarter that signal good things to come. On a GAAP basis, the company reported net income from continuing operations of $105 million, or $0.16 per diluted share – up from $0.09 in Q1 2016. Staples improved the profitability of its North American retail division with operating income up $4 million. The company also generated $258 million of cash from operating activities, and spent $37 million in capital expenditures, resulting in $221 million of free cash flow. Furthermore, while gross profit fell, total company gross profit rate improved 49 basis points to 26%.
As part of an effort to better focus the company on areas of strength, Staples completed the sale of businesses in Europe, Australia and New Zealand. Notably, the company ended the first quarter with $1.3 billion cash and cash equivalents, and launched a new brand campaign that aims to communicate the ways Staples is already a solutions provider to businesses.
Promotional products have been among the highlights for Staples, said CEO Shira Goodman. “Based on our success growing categories beyond office supplies, we’re intensifying our focus on several key growth categories, including facilities supplies, breakroom supplies, furniture, technology solutions, and promotional products, or what we now refer to as ‘Pro Categories,’” Goodman said. “We’re pursuing this opportunity from a position of strength as we bring together the products, services, and expertise to provide a differentiated offering to business customers of all sizes.”
Going forward, Staples expects to achieve fully diluted non-GAAP earnings per share from continuing operations in the range of $0.10 to $0.13 during the second quarter. For the full year 2017, the company expects to generate at least $500 million of free cash flow. Staples remains on track to close approximately 70 stores in North America in 2017.
With reported 2015 North American promotional product revenue of $554.1 million, Staples ranked first on Counselor’s list of the largest distributors in the industry.