Staples Tops Expectations, Ups Dividend
Staples' fourth-quarter profit grew nearly 22% as the nation's biggest office products supplier enjoyed strong growth in its delivery business and a turnaround in Europe, offsetting slow holiday season retail sales in North America.
Staples , which began paying an annual dividend to shareholders in 2004, also said Thursday it was increasing this year's annual cash payout by 32% to 29 cents a share, up from 22 cents a share a year ago.
The quarterly profit was boosted in part because Staples included 14 weeks in its fiscal fourth quarter ended Feb. 3, rather than the usual 13 weeks.
Net income rose to $336.5 million, or 46 cents a share, from $276.7 million, or 37 cents a share, in the comparable period a year earlier.
The latest quarter's profit beat by a penny the consensus forecast of analysts surveyed by Thomson Financial, who had expected a profit of 45 cents a share.
Sales grew 18% to $5.29 billion from $4.46 billion in the previous year's fourth quarter, but rose at a more modest 10% not counting $370 million in sales in the latest quarter's additional week.
Fourth-quarter sales at North American stores open at least a year rose just 1% compared with the previous year's final quarter, based on sales running through 13 weeks of both comparison quarters.
The 1% gain in the key measure of retail growth trailed 4% increases in comparable store sales in last year's second and third quarters.
Staples executives attributed the latest result to a slowdown in computer sales over the holidays, as consumers awaited the late January introduction of PCs equipped with Microsoft's new Windows Vista operating system. Sales of digital cameras and office furniture also were soft.
"Consumers were either waiting for Vista, or they were spending their money on flat-screen TVs rather than office technology products," Ron Sargent, Staples' chairman and chief executive, told analysts in a conference call.
Sargent said sales rebounded late in the quarter during January.
Anthony Chukumba, an analyst with FTN Midwest Securities, said Staples' slow North American sales growth came as little surprise after its top rival, Delray Beach, Fla.-based Office Depot , last month reported a 1% comparable stores sales gain in the fourth quarter, citing slowing computer and furniture sales.
"It's not just a Staples-specific issue," Chukumba said.
"I think all-in-all it was a nice quarter," he said, citing Staples' gains in Europe and in its delivery business.
Staples reported a 5% comparable store sales gain in in Europe, where Staples had previously seen disappointing results because of slow European economic growth and troubles integrating new European operations. Sargent said profit margins are improving for Staples' British retail operations and catalog sales in France.
Staples' North American delivery business continued its recent run of strong results, posting a sales gain of 14%. International sales -- including results from emerging markets such as Asia and South America -- were up 11% in local currency and 22% in U.S. dollars.
Staples added 99 stores in North America last year, moving into new markets like Chicago, southern Florida, and Denver.
For the full fiscal year -- which included 53 weeks rather than the usual 52 -- Staples' net income rose to $973.7 million, up 24% from the previous year's profit of $784.1 million. Profit rose to $1.32 a share from $1.04 per share, while sales increased 13% to $18.16 billion from $16.08 billion a year earlier.
Staples reaffirmed its expectations for first quarter and full-year 2007 earnings growth of 15% to 20%.
For the full year, that equals a full-year profit of $1.43 to $1.49 a share -- in line with analysts' expectations of $1.49 a share -- excluding one-time items.
The 20-year-old chain of about 1,900 stores and 74,000 employees is the nation's largest retailer of office products, ahead of Office Depot and Naperville, Ill.-based OfficeMax .