Staples, Inc. (Nasdaq: SPLS) announced today the results for its
first quarter ended May 2, 2015. Total company sales for the first
quarter of 2015 were $5.3 billion, a decrease of seven percent
compared to the first quarter of 2014. On a GAAP basis, the company
reported net income of $59 million, or $0.09 per diluted share,
compared to net income of $96 million, or $0.15 per diluted share,
achieved in the first quarter of 2014. First quarter 2015 results
on a GAAP basis include pre-tax charges of $45 million related to
restructuring and related activities, $22 million of impairment
primarily related to certain information technology assets, $15
million related to the acquisition of Office Depot, and a pre-tax
gain of approximately $3 million related to the sale of assets.
Total company sales declined less than one percent during the
first quarter, excluding the impact of store closures in North
America during the past year and changes in foreign exchange rates.
Excluding the impact of charges taken during the first quarter of
2015, the company reported non-GAAP net income of $109 million, or
$0.17 per diluted share.
“Our first quarter results were in line with our expectations,”
said Ron Sargent, Staples’ chairman and chief executive officer.
“We grew sales in our North American delivery businesses and
stabilized profitability across the company, which reflects
continued progress on our strategic reinvention.”
First Quarter 2015 Highlights
- Achieved North American Commercial
sales growth of three percent.
- Grew sales in Staples.com one percent
in U.S. dollars, or three percent on a local currency basis.
- Grew North American copy and print
sales in comparable stores, Staples.com and Contract.
- Increased total company gross profit as
a percentage of sales by 65 basis points on a GAAP basis, or 46
basis points after excluding an $11 million charge related to
inventory write-downs in the prior year.
- Secured more than $100 million of
annualized cost savings during the first quarter of 2015.
- Secured more than $350 million of
annualized cost savings since the beginning of 2014, as part of a
previously announced plan to eliminate at least $500 million of
annualized costs in 2014 and 2015 combined.
- Closed 28 stores in North America
during the first quarter of 2015.
- Closed 197 stores in North America
since the beginning of 2014, as part of a previously announced plan
to close at least 225 stores in 2014 and 2015 combined.
First Quarter 2015 Financial
Summary
First Quarter (dollar amounts in
millions, except per share data)
2015
2014 Change Total company sales $5,262
$5,654 -6.9%
Total company sales growth excluding the
impact of store closures and changes in foreign exchange rates*
-0.6% GAAP operating income $98 $159 -$61 Non-GAAP operating
income* $173 $183 -$10 GAAP operating income rate 1.9% 2.8%
-96 basis points Non-GAAP operating income rate* 3.3% 3.2% 6 basis
points GAAP net income $59 $96 -$38 Non-GAAP net income*
$109 $115 -$6 GAAP earnings per diluted share $0.09 $0.15
-40% Non-GAAP earnings per diluted share*
$0.17 $0.18 -6%
*Indicates a non-GAAP measure. Refer to “Presentation of
Non-GAAP Information” and the accompanying reconciliations for more
detailed information about these non-GAAP measures.
Total company non-GAAP operating income rate increased 6 basis
points to 3.29 percent from an operating income rate of 3.23
percent achieved during the first quarter of 2014. This increase
primarily reflects increased gross margin rate in North American
Stores and Online, as well as reduced rent expense primarily
related to store closures over the past year. The increase was
partially offset by the negative impact of fixed expenses on lower
sales.
During the first quarter of 2015, the company generated
operating cash flow of $300 million and invested $60 million in
capital expenditures, resulting in free cash flow of $240 million.
The company ended the quarter with $1.9 billion in liquidity,
including $795 million in cash and cash equivalents.
North American Stores and Online
First Quarter (dollar amounts in millions)
2015
2014 Change Sales $2,372
$2,634 -10.0% Comparable sales* -3% Comparable store sales -5%
Staples.com local currency sales growth 3% Operating income
$75 $93 -$18 Operating income rate 3.2%
3.5% -36 basis points
*Comparable sales includes comparable store sales and
Staples.com sales growth excluding the impact of changes in foreign
exchange rates.
Sales for the first quarter of 2015 were $2.4 billion, a
decrease of 10 percent compared to the first quarter of 2014. Sales
growth was negatively impacted by approximately four percent due to
store closures during the past year. Changes in foreign exchange
rates also negatively impacted first quarter 2015 sales growth by
approximately two percent. Comparable sales, which combines
comparable store sales and Staples.com sales growth excluding the
impact of changes in foreign exchange rates, declined three percent
versus the prior year. Sales declines in computers, mobility,
business machines and technology accessories were partially offset
by growth in copy and print, facilities and breakroom supplies and
mailing and shipping supplies. Comparable store sales decreased
five percent, reflecting a three percent decline in average order
size and a two percent decline in traffic versus the prior year.
Staples.com sales grew one percent in U.S. dollars, or three
percent on a local currency basis, during the first quarter of
2015.
Operating income rate decreased 36 basis points to 3.2 percent
compared to the first quarter of 2014. This decline primarily
reflects increased delivery expense as a percentage of sales, as
well as the negative impact of fixed expenses on lower sales. This
was partially offset by increased gross margin rate in retail
stores and online as a result of favorable product mix, as well as
reduced labor and rent expense in stores.
North American Commercial
First Quarter (dollar amounts in millions)
2015
2014 Change Sales $2,108
$2,056 2.5% Operating income $134 $136 -$2 Operating income
rate 6.4% 6.6% -24
basis points
Sales for the first quarter of 2015 were $2.1 billion, an
increase of three percent compared to the first quarter of 2014.
This primarily reflects growth in facilities and breakroom
supplies, furniture and print solutions, partially offset by sales
declines in ink and toner and paper.
Operating income rate decreased 24 basis points to 6.4 percent
compared to the first quarter of 2014. This decline primarily
reflects investments in sales force to drive growth in categories
beyond office supplies. This was partially offset by reduced
marketing expense in Quill.com.
International
Operations
First Quarter (dollar amounts in
millions)
2015 2014 Change Sales $782 $964
-18.9% Operating income
-$20
-$25
$5 Operating income rate -2.5%
-2.6% 7 basis points
Sales for the first quarter of 2015 were $782 million, a
decrease of 19 percent in U.S. dollars and a decrease of two
percent on a local currency basis compared to 2014. This was
primarily driven by a seven percent decline in comparable store
sales in Europe during the first quarter of 2015.
Operating income rate for International Operations increased 7
basis points to an operating loss of 2.5 percent compared to the
first quarter of 2014. This increase primarily reflects improved
gross margin rate in Europe and Australia, partially offset by
increased costs in local currency related to the transition to a
more centralized pan-European operating model.
Outlook
For the second quarter of 2015, the company expects sales to
decrease versus the second quarter of 2014. The company expects to
achieve fully diluted non-GAAP earnings per share in the range of
$0.11 to $0.13 for the second quarter of 2015. This guidance
excludes any potential impact on earnings per share related to
restructuring and other related activities or costs related to the
company’s planned acquisition of Office Depot. For the full year
2015, the company expects to generate more than $600 million of
free cash flow.
Presentation of Non-GAAP Information
This press release presents certain results in 2015 with and
without restructuring and related charges, long-lived asset
impairment, inventory write-downs, costs related to the acquisition
of Office Depot, and the gain on the sale of certain assets. This
press release also presents certain results for 2015 both with and
without the impact of fluctuations in foreign currency exchange
rates and with and without the impact of store closures. The
presentation of these results, as well as the presentation of free
cash flow, are non-GAAP financial measures that should be
considered in addition to, and should not be considered superior
to, or as a substitute for, the presentation of results determined
in accordance with GAAP. Management believes that the non-GAAP
financial measures enable management and investors to understand
and analyze the company’s performance by providing meaningful
information that facilitates the comparability of underlying
business results from period to period. Management uses these
non-GAAP financial measures to evaluate the operating results of
the company’s business against prior year results and its operating
plan, and to forecast and analyze future periods. Management
recognizes there are limitations associated with the use of
non-GAAP financial measures as they may reduce comparability with
other companies that use different methods to calculate similar
non-GAAP measures. Management generally compensates for these
limitations by considering GAAP as well as non-GAAP results. In
addition, management provides a reconciliation to the most
comparable GAAP financial measure. With respect to earnings per
share and free cash flow, financial guidance on a GAAP basis has
not been provided given that current estimates for charges to be
incurred related to restructuring initiatives, the planned
acquisition of Office Depot, and the potential related impact on
cash flow represent broad ranges which are based on preliminary
analysis and are subject to change as plans become finalized.
Today's Conference Call
The company will host a conference call today at 8:00 a.m. (ET)
to review these results and its outlook. Investors may listen to
the call at http://investor.staples.com.
About Staples
Staples makes it easy to make more happen with more products and
more ways to shop. Through its world-class retail, online and
delivery capabilities, Staples lets customers shop however and
whenever they want, whether it’s in-store, online or on mobile
devices. Staples offers more products than ever, such as
technology, facilities and breakroom supplies, furniture, safety
supplies, medical supplies, and Copy and Print services.
Headquartered outside of Boston, Staples operates throughout North
and South America, Europe, Asia, Australia and New Zealand. More
information about Staples (SPLS) is available at
www.staples.com.
Certain information contained in this news release constitutes
forward-looking statements for purposes of the safe harbor
provisions of The Private Securities Litigation Reform Act of 1995
including, but not limited to, the information set forth under
“Outlook” and other statements regarding our future business and
financial performance. Any statements contained in this news
release that are not statements of historical fact should be
considered forward-looking statements. You can identify
forward-looking statements by the use of the words “believes”,
“expects”, “anticipates”, “plans”, “may”, “will”, “would”,
“intends”, “estimates”, and other similar expressions, whether in
the negative or affirmative, although not all forward-looking
statements include such words. Forward-looking statements are based
on a series of expectations, assumptions, estimates and projections
which involve substantial uncertainty and risk, including the
review of our assessments by our outside auditor and changes in
management’s assumptions and projections. Actual results may differ
materially from those indicated by such forward-looking statements
as a result of the risks and uncertainties, including but not
limited to those factors discussed or referenced in our Annual
Report on Form 10-K filed on March 6, 2015, as well as our most
recent quarterly report on Form 10-Q filed with the SEC, under the
heading “Risk Factors” and elsewhere, and any subsequent periodic
or current reports filed by us with the SEC. In addition, any
forward-looking statements represent our estimates only as of the
date such statements are made (unless another date is indicated)
and should not be relied upon as representing our estimates as of
any subsequent date. While we may elect to update forward-looking
statements at some point in the future, we specifically disclaim
any obligation to do so, even if our estimates change.
STAPLES, INC. AND SUBSIDIARIES Condensed
Consolidated Balance Sheets (Dollar Amounts in Millions,
Except Share Data) (Unaudited)
May 2, 2015 January 31,
2015 ASSETS Current assets: Cash and cash
equivalents $ 795 $ 627 Receivables, net 1,865 1,928 Merchandise
inventories, net 2,211 2,144 Deferred income tax assets 220 224
Prepaid expenses and other current assets 290 252
Total current assets 5,381 5,175
Property and
equipment: Land and buildings 945 948 Leasehold improvements
1,218 1,231 Equipment 2,817 2,825 Furniture and fixtures 1,014
1,016
Total property and equipment 5,994 6,020
Less: Accumulated depreciation 4,350 4,314
Net
property and equipment 1,644 1,706
Intangible assets,
net of accumulated amortization 326 335
Goodwill 2,681
2,680
Other assets 406 412
Total assets
$ 10,438 $ 10,308
LIABILITIES AND
STOCKHOLDERS’ EQUITY Current liabilities: Accounts
payable $ 2,030 $ 1,867 Accrued expenses and other current
liabilities 1,268 1,332 Debt maturing within one year 93 92
Total current liabilities 3,391 3,291
Long-term debt, net of current maturities 1,020 1,018
Other long-term obligations 691 686
Stockholders’
equity: Preferred stock, $.01 par value, 5,000,000 shares
authorized; no shares issued — — Common stock, $.0006 par value,
2,100,000,000 shares authorized; issued and outstanding 941,903,232
and 640,662,043 shares at May 2, 2015 and 941,561,541 shares and
640,320,352 shares at January 31, 2015, respectively 1 1 Additional
paid-in capital 4,953 4,935 Accumulated other comprehensive loss
(1,018 ) (1,041 ) Retained earnings 6,811 6,829 Less: Treasury
stock at cost, 301,241,189 shares at May 2, 2015 and 301,241,189
shares at January 31, 2015 (5,419 ) (5,419 )
Total Staples, Inc.
stockholders’ equity 5,328 5,305 Noncontrolling interests 8
8
Total stockholders’ equity 5,336
5,313
Total liabilities and stockholders’ equity $
10,438 $ 10,308
STAPLES, INC. AND
SUBSIDIARIES Condensed Consolidated Statements of Income
(Amounts in Millions, Except Per Share Data)
(Unaudited) 13 Weeks
Ended
May 2, 2015
May 3, 2014 Sales $ 5,262 $
5,654 Cost of goods sold and occupancy costs 3,915 4,244
Gross profit 1,347 1,410
Operating expenses:
Selling, general and administrative 1,172 1,223 Impairment of
long-lived assets 22 22 Restructuring charges 41 13 Amortization of
intangibles 17 15
Total operating expenses
1,252 1,273 Gain on sale of businesses and assets, net 3
22
Operating income 98 159
Other income (expense): Interest income 1 1 Interest expense
(16 ) (12 ) Other income (expense), net 1 1 Income
before income taxes 84 148 Income tax expense 25 52
Net income $ 59 $ 96 Earnings Per
Share: Basic Earnings Per Common Share $ 0.09 $ 0.15 Diluted
Earnings Per Common Share $ 0.09 $ 0.15 Weighted Average
Shares Outstanding: Basic 639 643 Diluted 645 649 Dividends
declared per common share $ 0.12 $ 0.12
Comprehensive income $ 82 $ 168
STAPLES, INC. AND SUBSIDIARIES Condensed Consolidated
Statements of Cash Flows (Amounts in Millions)
(Unaudited) 13 Weeks Ended
May 2, 2015 May 3,
2014 Operating Activities: Net income $ 59 $ 96
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation 101 102 Amortization of
intangibles 17 15 Gain on sale of businesses and assets, net (3 )
(22 ) Impairment of long-lived assets 22 22 Inventory write-downs
related to restructuring activities — 11 Stock-based compensation
16 21 Deferred income tax benefit — (7 ) Other 3 4 Changes in
assets and liabilities: Decrease in receivables 69 12 Increase in
merchandise inventories (53 ) — Increase in prepaid expenses and
other assets (34 ) (22 ) Increase in accounts payable 155 76
(Decrease) increase in accrued expenses and other liabilities (67 )
29 Increase in other long-term obligations 15 22
Net cash provided by operating activities 300 359
Investing Activities: Acquisition of property and equipment
(60 ) (48 ) Proceeds from the sale of property and equipment 6 —
Sale of businesses, net — 50 Acquisition of businesses, net of cash
acquired (9 ) —
Net cash (used in) provided by investing
activities (63 ) 2
Financing Activities: Proceeds
from issuance of commercial paper, net of repayments — 75 Proceeds
from the exercise of stock options 3 — Proceeds from borrowings 1 7
Payments on borrowings, including payment of deferred financing
fees (5 ) (8 ) Cash dividends paid (76 ) (77 ) Repurchase of common
stock (1 ) (70 )
Net cash used in financing activities (78 )
(73 ) Effect of exchange rate changes on cash and cash equivalents
9 4
Net increase in cash and cash equivalents
168 292 Cash and cash equivalents at beginning of period 627
493 Cash and cash equivalents at end of period 795 785 Add:
Cash and cash equivalents attributed to disposal group held for
sale at February 1, 2014 — 8
Cash and cash
equivalents at the end of the period $ 795 $ 793
STAPLES, INC. AND SUBSIDIARIES Segment
Reporting (Amounts in Millions) (Unaudited)
13 Weeks Ended May 2,
2015 May 3, 2014 Sales North
American Stores & Online $ 2,372 $ 2,634 North American
Commercial 2,108 2,056 International Operations 782 964
Total segment sales $ 5,262 $ 5,654
Business Unit Income (Loss) North American Stores &
Online $ 75 $ 93 North American Commercial 134 136 International
Operations (20 ) (25 ) Business unit income 189 203 Stock-based
compensation (16 ) (21 ) Impairment of long-lived assets (22 ) (22
) Restructuring charges (41 ) (13 ) Inventory write-downs related
to restructuring activities — (11 ) Accelerated depreciation
related to restructuring activities (4 ) — Gain on sale of
businesses and assets, net 3 22 Interest and other expense, net (14
) (11 ) Merger-related costs (11 ) — Income before income
taxes $ 84 $ 148
STAPLES, INC. AND
SUBSIDIARIES Reconciliation of GAAP to Non-GAAP Income
Statement Disclosures (Dollar Amounts in Millions, Except
Per Share Data) (Unaudited)
13 Weeks Ended May 2, 2015 GAAP
Restructuringcharges
Accelerateddepreciation
Impairmentof
long-livedassets
Gain on sale of assets
Merger-relatedcosts
Non-GAAP
Operating income $ 98 $ 41 $ 4 $ 22 $ (3 ) $ 11 $ 173 Interest and
other expense, net 14 — (4 ) 10 Income before income
taxes 84 163 Income tax expense 25 25 Adjustments —
29 Adjusted income tax expense 25 54 Net
income $ 59 $ 109 Effective tax rate 30.1 %
33.5 % Diluted earnings per common share $ 0.09 $ 0.17
STAPLES, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Income Statement
Disclosures (Dollar Amounts in Millions, Except Per Share
Data) (Unaudited)
13 Weeks Ended May 3, 2014 GAAP
Inventorywrite-downs
Restructuringcharges
Impairment oflong
livedassets
Gain onsale
ofbusinesses,net
Non-GAAP
Sales $ 5,654 $ 5,654 Gross profit 1,410 $ 11 $ — $ — $ — 1,421
Gross profit rate 24.9 % 25.1 % Operating income 159 11 13
22 (22 ) 183 Interest and other expense, net 11 11
Income before income taxes 148 172 Income tax expense 52 52
Adjustments — 6 Adjusted income tax expense 52 58
Net income $ 96 $ 115 Effective
tax rate 35.1 % 33.5 % Diluted earnings per common share $
0.15 $ 0.18
STAPLES, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Sales Growth (Dollar
amounts in Millions) (Unaudited) Staples.com
Sales Growth
First quarter offiscal
2015
First quarter of fiscal
2014
Change GAAP sales $ 596 $ 589 $ 7 GAAP sales growth 1.1 %
Impact of changes in exchange rates $ 12 Non-GAAP
sales $ 608 $ 589 $ 19 Non-GAAP sales growth 3.1 %
13 Weeks Ended May 2, 2015
Sales GrowthGAAP
Impact of LocalCurrency
Sales Growth on a Local
CurrencyBasis
Sales: North American Stores & Online (10.0
)%
2.3 % (7.7 )% North American Commercial 2.5 % 0.7 % 3.2 %
International Operations (18.9 )% 16.7 % (2.2 )% Total sales (6.9
)% 4.1 % (2.8 )%
This presentation refers to growth rates in local currency so
that business results can be viewed without the impact of
fluctuations in foreign currency exchange rates, thereby
facilitating period-to-period comparisons of Staples' business
performance. To present this information, current period results
for entities reporting in currencies other than U.S. dollars are
converted into U.S. dollars at the prior year average monthly
exchange rates.
STAPLES, INC. AND SUBSIDIARIES Reconciliation of
GAAP to Non-GAAP Sales Growth (continued) (Unaudited)
13 Weeks EndedMay 2, 2015
GAAP sales growth (6.9 )% Impact of change in exchange rates (4.1
)% Impact of store closures (2.2 )% Non-GAAP sales growth (0.6 )%
STAPLES, INC. AND SUBSIDIARIES Reconciliation of
Free Cash Flow Disclosures (Amounts in Millions)
(Unaudited) 13 Weeks
Ended May 2, 2015 May 3, 2014 Net
cash provided by operating activities $ 300 $ 359 Acquisition of
property and equipment (60 ) (48 ) Free cash flow $ 240 $
311
Free cash flow is not defined under U.S. GAAP. Therefore, it
should not be considered a substitute for income or cash flow data
prepared in accordance with GAAP and may not be comparable to
similarly titled measures used by other companies. The company
defines free cash flow as net cash provided by operating activities
less capital expenditures. It should not be inferred that the
entire free cash flow amount is available for discretionary
expenditures. The company believes free cash flow is a useful
measure of performance and uses this measure as an indication of
the company's ability to generate cash and invest in its
business.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150520005586/en/
Staples, Inc.Media Contact:Kirk Saville,
508-253-8530orInvestor Contact:Chris Powers or Kevin Barry,
508-253-4632/1487
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