Staples Reports Q3 Revenue Decline

Staples Inc., parent company of Top 40 distributor Staples Promotional Products (asi/120601), announced that company revenue for its fiscal third quarter was $5.4 billion, a year-over-year decrease of 4%. In a conference call with analysts on November 17, CEO Shira Goodman said that the company’s promotional products business grew by a “low single-digit” percentage for the quarter.

Gross profit for Staples decreased 5.2% year-over-year to $1.4 billion, while adjusted operating income decreased .84% to $355 million.

On a GAAP basis, the company reported a revenue gain of $179 million (27 cents a share), a decrease of 9.6% from $198 million (31 cents a share) a year ago. The company’s revenue was impacted by a $57 million pre-tax charge in international operations, for assets with a market price below what the company valued them at. Staples had also just announced that it sold its UK retail business for “nominal proceeds”, with the Staples brand to be phased out of the UK over the coming months. The company experienced a year-over-year decrease of 7.2% in its international business as it explores strategic alternatives for the remainder of Staples Europe.

Third-quarter sales at North American retail locations and online fell 4.5%, from $2.61 billion in 2015 to $2.5 billion in 2016. Sales at fell 1%. The North American Commercial sector, which includes Staples Business Advantage contract operations and promotional products business, fell 2.9% to $2.1 billion. According to the company, sales in the Commercial division were negatively affected by about 4% due to the sale of Staples Print Solutions to Taylor Company in the second quarter, though they also reflect growth in the facilities supplies, breakroom supplies and technology products categories. This was in turn offset by declines in sales of ink and toner and office supplies.

In early November, the company acquired Capital Office Products, an independent office products reseller that generates more than $100 million in annual revenue.

In the earnings call, CEO Goodman reiterated the company’s focus on Staples 20/20, its new strategic plan. She called it “a transformational change of our strategy, of our mindset and of our operating model that is designed to leverage our strengths and address our challenges head-on. We're driving extreme focus by allocating more resources to the businesses where we have our strongest competitive advantages, and deemphasizing our underperforming businesses.”

Staples is looking to expand beyond office supplies by focusing on its business service offerings. The company on Thursday announced a partnership with Managed by Q, a web-based platform for running an office, with the ability to consolidate vendor management. The service is available to customers in Chicago, Los Angeles, New York City and San Francisco.

Staples closed 16 retail stores in the third quarter, impacting sales growth by about 1%. The company plans to close at least 50 stores in North America by the end of the year, and has closed 345 since 2011.

In its outlook, the company expects fiscal fourth quarter sales to decrease compared to the fourth quarter of 2015. Staples anticipates that adjusted earnings per share will be between 23 cents and 26 cents for the fourth quarter, and plans to generate $700 million in free cash flow for the year, up from a projected $600 million at the end of the second quarter. This will exclude a $340 million charge related to the proposed acquisition of Office Depot and the costs associated with the subsequent failed merger.

Staples Promotional Products is ranked first on Counselor’s list of the Top 40 distributors, with estimated 2015 North American revenue of $554.1 million.