Staples 3Q Profit, Same-Store Sales Fall

BOSTON — Staples Inc.'s third-quarter profit dipped 5 percent as consumers spent less on office supplies, but sales of highly profitable items like ink cartridges grew, and Staples' performance beat Wall Street expectations.

Investors sent shares of the world's largest office products supplier up nearly 11 percent, a week after rival Office Depot Inc. saw its shares drop 6 percent when its third-quarter numbers fell.

Office Depot's recent problems helped trigger a 16 percent decline in Staples' shares over the past four weeks, and Staples' stronger results Tuesday topped investors' low expectations, said Anthony Chukumba, an analyst with FTN Midwest Securities.

"The stock had gotten oversold," Chukumba said. "I think this reaffirms that Staples is the market leader."

Staples said net income for the three-month period ended Nov. 3 was $274.5 million, or 38 cents per share, compared with a profit of $289.9 million, or 39 cents per share, in the same period a year ago.

Sales grew 9 percent to $5.17 billion from $4.76 billion a year ago.

The latest quarter's profit was hurt by a $38 million charge from a settlement of an employee class-action by assistant store managers in California, who alleged they were misclassified as exempt from overtime pay. The settlement, which Staples disclosed Nov. 3, shaved 4 cents per share from Staples' profit.

Not counting that expense, the latest quarter's profit was 42 cents per share, beating the consensus forecast of analysts surveyed by Thomson Financial, who expected a profit of 40 cents per share.

Staples shares rose $2.09, or 10.6 percent, to $21.85 after rising as high as $22.48 earlier in the session.

North American sales at stores open for at least a year fell 3 percent versus a year ago after declining 2 percent in the second quarter — a performance that broke a six-year string of quarterly same-store sales gains for Staples.

Office Depot last week reported a slightly steeper 5 percent third-quarter decline in same-store North American sales, and a 9 percent profit drop.

Framingham, Mass.-based Staples and Delray Beach, Fla.-based Office Depot are among many retailers recently hurt by U.S. consumer worries about the housing slump, credit market troubles, and rising energy and food prices. Staples executives told analysts on a conference call that they expect the conditions to persist through the middle of next year.

Ron Sargent, Staples' chairman and chief executive, said he was "not happy" with the decline in North American same-store sales. But he said the company enjoyed better profit margins because of lower expenses and strong sales of high-margin, single-use items like ink cartridges, and sales growth at copy centers. Those gains were offset by slow sales of durable, lower-margin items such as computers and office furniture, the type of purchases that many consumers put off in tough times.

Staples' North American delivery business grew 15 percent in the latest quarter. International sales rose 8 percent in local currency and 18 percent measured by U.S. dollars.

For the full year, the chain of more than 2,000 stores and 74,000 employees expects earnings growth of 15 percent — in line with analysts expectations for a full-year profit of $1.41 per share, excluding one-time gains and expenses, for 11 percent earnings growth.

In the fourth quarter, Staples expects low double-digit sales growth overall, with flat to slightly negative same-store sales, and faster growth for its delivery and international businesses.