Staples, Inc. (Nasdaq: SPLS) announced today the results for its
second quarter ended August 1, 2015. Total company sales for the
second quarter of 2015 were $4.9 billion, a decrease of five
percent compared to the second quarter of 2014. On a GAAP basis,
the company reported net income of $36 million, or $0.06 per
diluted share. Second quarter 2015 results on a GAAP basis include
pre-tax charges of $24 million related to restructuring and related
activities, as well as $34 million related to the acquisition of
Office Depot.
Total company sales increased one percent during the second
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 second quarter of
2015, the company reported non-GAAP net income of $76 million, or
$0.12 per diluted share, compared to second quarter 2014 non-GAAP
net income of $75 million, or $0.12 per diluted share.
“Our second quarter results were in-line with our expectations
and reflect steady progress on our strategic reinvention,” said Ron
Sargent, Staples’ chairman and chief executive officer. “We
continued to drive growth in our delivery businesses and in
categories beyond office supplies, and we grew operating income
during the second quarter. We remain on track with the acquisition
of Office Depot, which we expect to close by the end of 2015.”
Second Quarter 2015 Highlights
- Achieved North American Commercial
sales growth of three percent.
- 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 54 basis points on a GAAP basis, or 44
basis points after excluding a $5 million charge related to
inventory write-downs in the prior year.
- Grew operating income in North American
Commercial and North American Stores and Online.
- Secured more than $50 million of
annualized cost savings during the second quarter of 2015.
- Secured more than $400 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 15 stores in North America
during the second quarter of 2015.
- Closed 212 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.
Second Quarter 2015 Financial
Summary
Second Quarter (dollar amounts
in millions, except per share data)
2015
2014 Change Total company
sales $4,937 $5,220 -5.4% Total company sales growth excluding the
impact of store closures and changes in foreign exchange rates*
0.7% GAAP operating income $92 $19 $73 Non-GAAP operating
income* $126 $120 $6 GAAP operating income rate 1.9% 0.4%
151 basis points Non-GAAP operating income rate* 2.6% 2.3% 26 basis
points GAAP net income $36 $82 -$46 Non-GAAP net income* $76
$75 $1 GAAP earnings per diluted share $0.06 $0.13 -54%
Non-GAAP earnings per diluted share*
$0.12 $0.12 0%
*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 26 basis
points to 2.56 percent from an operating income rate of 2.30
percent achieved during the second quarter of 2014. This increase
reflects improved product margin rate in North American Stores and
Online, as well as reduced rent expense. This was partially offset
by the negative impact of lower sales on fixed expenses.
The company generated operating cash flow of $300 million and
invested $138 million in capital expenditures year to date,
resulting in free cash flow of $162 million for the first half of
2015, a decrease of $32 million compared to the first half of 2014.
The company ended the quarter with $1.7 billion in liquidity,
including $611 million in cash and cash equivalents.
North American Stores and Online
Second Quarter (dollar amounts in millions)
2015 2014
Change Sales $2,108 $2,282 -7.6% Comparable sales* -2%
Comparable store sales -3% Staples.com local currency sales growth
1% Operating income $28 $28 $0 Operating income rate
1.3% 1.2%
11 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 second quarter of 2015 were $2.1 billion, a
decrease of eight percent compared to the second 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 second quarter 2015 sales
growth by approximately three percent. Comparable sales, which
combines comparable store sales and Staples.com sales growth
excluding the impact of changes in foreign exchange rates,
decreased two percent versus the prior year. Sales declines in
mobility, business machines, technology accessories, and computers
were partially offset by growth in ink and toner, copy and print,
and facilities supplies. Comparable store sales decreased three
percent, reflecting a two percent decline in average order size and
a one percent decline in traffic versus the prior year. Staples.com
sales declined one percent in U.S. dollars and grew one percent on
a local currency basis during the second quarter of 2015.
Operating income rate increased 11 basis points to 1.3 percent
compared to the second quarter of 2014. This increase primarily
reflects improved product margin rate in retail stores and online,
as well as reduced labor, rent and other operating expenses in
stores. This was partially offset by the negative impact of lower
sales on fixed expenses.
North American Commercial
Second Quarter (dollar amounts in millions)
2015
2014 Change
Sales $2,049 $1,997 2.6% Operating income $138 $131 $7
Operating income rate 6.7%
6.5% 19 basis points
Sales for the second quarter of 2015 were $2.0 billion, an
increase of three percent compared to the second quarter of 2014.
This primarily reflects growth in facilities supplies, breakroom
supplies, furniture, and promotional products, partially offset by
sales declines in ink and toner and paper.
Operating income rate increased 19 basis points to 6.7 percent
compared to the second quarter of 2014. This increase primarily
reflects the favorable impact of higher sales on fixed expenses. It
also reflects increased product margin rate and lower marketing
expense. This was partially offset by continued investments in
sales force to drive growth in categories beyond office
supplies.
International Operations
Second Quarter (dollar amounts in millions)
2015
2014 Change
Sales $780 $941 -17.2% Operating loss -$22 -$22 $0 Operating
loss rate -2.8% -2.3%
-52 basis points
Sales for the second quarter of 2015 were $780 million, a
decrease of 17 percent in U.S. dollars and a decrease of one
percent on a local currency basis compared to the second quarter of
2014. This was primarily driven by a four percent decline in
comparable store sales in Europe.
Operating income rate for International Operations decreased 52
basis points to an operating loss of 2.8 percent compared to the
second quarter of 2014. This decrease primarily reflects lower
product margin rate in Europe, partially offset by improved
profitability in Australia and China.
Outlook
For the third quarter of 2015, the company expects sales to
decrease versus the third quarter of 2014. The company expects to
achieve fully diluted non-GAAP earnings per share in the range of
$0.33 to $0.36 for the third quarter of 2015. The company’s
guidance reflects a sequential increase in the unfavorable impact
of the stronger U.S. dollar on sales and earnings. The company’s
earnings guidance excludes any potential impact 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 with and without
restructuring and related charges, long-lived asset impairment,
inventory write-downs, and costs related to the acquisition of
Office Depot. This press release also presents certain results 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
quarterly reports on Form 10-Q filed with the SEC since the 10-K,
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)
August 1, 2015 January 31,
2015 ASSETS Current assets: Cash and cash
equivalents $ 611 $ 627 Receivables, net 1,862 1,928 Merchandise
inventories, net 2,360 2,144 Deferred income tax assets 214 224
Prepaid expenses and other current assets 327 252
Total current assets 5,374 5,175
Property and
equipment: Land and buildings 926 948 Leasehold improvements
1,201 1,231 Equipment 2,798 2,825 Furniture and fixtures 984
1,016
Total property and equipment 5,909 6,020 Less:
Accumulated depreciation 4,312 4,314
Net property
and equipment 1,597 1,706
Intangible assets, net of
accumulated amortization 310 335
Goodwill 2,662 2,680
Other assets 383 412
Total assets $
10,326 $ 10,308
LIABILITIES AND STOCKHOLDERS’
EQUITY Current liabilities: Accounts payable $
2,129 $ 1,867 Accrued expenses and other current liabilities 1,193
1,332 Debt maturing within one year 90 92
Total
current liabilities 3,412 3,291
Long-term debt, net
of current maturities 1,018 1,018
Other long-term
obligations 673 686
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 944,769,441 and
643,528,252 shares at August 1, 2015 and 941,561,541 shares and
640,320,352 shares at January 31, 2015, respectively 1 1 Additional
paid-in capital 4,966 4,935 Accumulated other comprehensive loss
(1,104 ) (1,041 ) Retained earnings 6,771 6,829 Less: Treasury
stock at cost, 301,241,189 shares at August 1, 2015 and January 31,
2015 (5,419 ) (5,419 )
Total Staples, Inc. stockholders’
equity 5,215 5,305 Noncontrolling interests 8 8
Total stockholders’ equity 5,223 5,313
Total liabilities and stockholders’ equity $ 10,326 $
10,308
STAPLES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Amounts in
Millions, Except Per Share Data) (Unaudited)
13 Weeks Ended
26 Weeks Ended August 1, 2015
August 2, 2014 August 1, 2015
August 2, 2014 Sales $ 4,937 $
5,220 $ 10,198 $ 10,874 Cost of goods sold and occupancy costs
3,673 3,912 7,588 8,156
Gross
profit 1,264 1,308 2,610 2,718
Operating expenses:
Selling, general and administrative 1,131 1,180 2,302 2,403
Impairment of long-lived assets 1 5 23 27 Restructuring charges 23
88 64 102 Amortization of intangibles 17 15 34
30
Total operating expenses 1,172 1,289
2,423 2,562 Gain on sale of businesses and
assets, net — — 3 22
Operating income 92 19 190 178
Other income
(expense): Interest income 1 1 2 2 Interest expense (35 ) (13 )
(51 ) (25 ) Other income (expense), net (2 ) 5 (1 ) 5
Income before income taxes 56 12 140 160 Income tax expense
(benefit) 20 (70 ) 45 (18 )
Net income $ 36
$ 82 $ 95 $ 178 Earnings Per
Share: Basic Earnings Per Common Share $ 0.06 $ 0.13 $ 0.15 $ 0.28
Diluted Earnings Per Common Share $ 0.06 $ 0.13 $ 0.15 $ 0.27
Weighted Average Shares Outstanding: Basic 641 641 640 642
Diluted 647 647 646 648 Dividends declared per common share
$ 0.12 $ 0.12 $ 0.24 $ 0.24
Comprehensive income $ (49 ) $ 11 $ 33 $ 178
STAPLES, INC. AND SUBSIDIARIES Condensed
Consolidated Statements of Cash Flows (Amounts in
Millions) (Unaudited) 26
Weeks Ended August 1, 2015
August 2, 2014 Operating Activities: Net
income $ 95 $ 178 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation 198 200 Amortization
of intangibles 34 30 Gain on sale of businesses and assets, net (3
) (22 ) Impairment of long-lived assets 23 27 Inventory write-downs
related to restructuring activities — 16 Stock-based compensation
34 37 Excess tax benefits from stock-based compensation
arrangements (4 ) — Deferred income tax expense (benefit) 1 (11 )
Other 4 7 Changes in assets and liabilities: Decrease in
receivables 51 13 Increase in merchandise inventories (231 ) (219 )
Increase in prepaid expenses and other assets (57 ) (71 ) Increase
in accounts payable 277 163 Decrease in accrued expenses and other
liabilities (126 ) (43 ) Increase in other long-term obligations 4
—
Net cash provided by operating activities
300 304
Investing Activities: Acquisition of property
and equipment (138 ) (110 ) Proceeds from the sale of property and
equipment 8 3 Sale of businesses, net — 50 Acquisition of
businesses, net of cash acquired (21 ) (68 )
Net cash used in
investing activities (151 ) (124 )
Financing
Activities: Proceeds from the exercise of stock options and
sale of stock under employee stock purchase plans 23 20 Proceeds
from borrowings 3 13 Payments on borrowings, including payment of
deferred financing fees (14 ) (14 ) Cash dividends paid (153 ) (154
) Excess tax benefits from stock-based compensation arrangements 4
— Repurchase of common stock (21 ) (126 )
Net cash used in
financing activities (158 ) (261 ) Effect of exchange rate
changes on cash and cash equivalents (7 ) (2 )
Net decrease in
cash and cash equivalents (16 ) (83 ) Cash and cash equivalents
at beginning of period 627 493 Cash and cash
equivalents at end of period 611 409 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 $ 611 $ 417
STAPLES, INC.
AND SUBSIDIARIES Segment Reporting (Amounts in
Millions) (Unaudited) 13 Weeks
Ended 26 Weeks Ended August 1,
2015 August 2, 2014 August 1, 2015
August 2, 2014 Sales North American
Stores & Online $ 2,108 $ 2,282 $ 4,479 $ 4,916 North American
Commercial 2,049 1,997 4,157 4,053 International Operations 780
941 1,562 1,905 Total segment sales $
4,937 $ 5,220 $ 10,198 $ 10,874
Business Unit Income (Loss) North American Stores &
Online $ 28 $ 28 $ 103 $ 120 North American Commercial 138 131 272
266 International Operations (22 ) (22 ) (42 ) (47 ) Business unit
income 144 136 333 340 Stock-based compensation (17 ) (16 ) (34 )
(37 ) Impairment of long-lived assets (1 ) (5 ) (23 ) (27 )
Restructuring charges (23 ) (88 ) (64 ) (102 ) Inventory
write-downs related to restructuring activities — (5 ) — (16 )
Accelerated depreciation related to restructuring activities (1 )
(2 ) (5 ) (2 ) Gain on sale of businesses and assets, net — — 3 22
Interest and other expense, net (36 ) (7 ) (50 ) (18 )
Merger-related costs (10 ) — (20 ) — Income before
income taxes $ 56 $ 12 $ 140 $ 160
STAPLES, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Income Statement
Disclosures (Dollar Amounts in Millions, Except Per Share
Data) (Unaudited)
For the non-GAAP measures related to
results of operations, reconciliations to the most directly
comparable GAAP measures areshown below (amounts in millions,
except per share data):
13 Weeks Ended August 1,
2015 GAAP
Restructuringcharges
Impairment of long-lived assets
&accelerateddepreciation
Merger-relatedcosts
Non-GAAP Operating income $ 92 $ 23 $ 1
$ 10 $ 126 Interest and other expense, net 36 24 12
Income before income taxes 56 114 Income tax expense 20 20
Adjustments — 18 Adjusted income tax expense 20 38
Net income $ 36 $ 76 Effective
tax rate 35.4 % 33.5 % Diluted earnings per common share $
0.06 $ 0.12
26 Weeks Ended
August 1, 2015 GAAP
Restructuringcharges
Impairment oflong-lived assets
&accelerateddepreciation
Gain on sale ofassets,
net
Merger-relatedcosts
Non-GAAP Operating income $ 190 $ 64 $ 28 $ (3
) $ 20 $ 299 Interest and other expense, net 50 28 22
Income before income taxes 140 277 Income tax expense 45 45
Adjustments — 48 Adjusted income tax expense 45 93
Net income $ 95 $ 184 Effective
tax rate 32.2 % 33.5 % Diluted earnings per common share $
0.15 $ 0.28
13 Weeks Ended
August 2, 2014 GAAP
Inventorywrite-downs
Restructuringcharges
Impairment
oflong-livedassets
&accelerateddepreciation
Non-GAAP Sales $ 5,220 $ 5,220 Gross profit
1,308 $ 5 — — 1,313 Gross profit rate 25.1 % 25.2 %
Operating income 19 5 $ 88 $ 7 120 Interest and other expense, net
7 7 Income before income taxes 12 113 Income
tax benefit (70 ) (70 ) Reduction of liability for unrecognized tax
benefits & other discrete tax items — 67 Tax benefit on charges
related to restructuring activities — 41 Adjusted
income tax (benefit) expense (70 ) 38 Net income $ 82
$ 75 Effective tax rate (581.0 )% 33.5 %
Diluted earnings per common share $ 0.13 $ 0.12
26 Weeks Ended August 2, 2014
GAAP
Inventorywrite-downs
Restructuringcharges
Impairment
oflong-livedassets
&accelerateddepreciation
Gain on sale ofbusinesses,
net
Non-GAAP Sales $ 10,874 $ 10,874 Gross profit
2,718 $ 16 2,734 Gross profit rate 25.0 % 25.1 % Operating
income 178 16 $ 102 $ 29 $ (22 ) 303 Interest and other expense,
net (18 ) (18 ) Income before income taxes 160 285 Income
tax benefit (18 ) (18 ) Reduction of liability for unrecognized tax
benefits & other discrete tax items — 58 Tax benefit on charges
related to restructuring activities — 55 Adjusted
income tax (benefit) expense (18 ) 95 Net income 178
190 Effective tax rate (11.2 )% 33.5 %
Diluted earnings per common share $ 0.27 $ 0.29
Note that certain percentage figures shown in
the tables above may not recalculate due to rounding.
STAPLES, INC. AND SUBSIDIARIES Reconciliation of
GAAP to Non-GAAP Sales Growth (Dollar amounts in
Millions) (Unaudited) Staples.com Sales
Growth
Second quarter offiscal
2015
Second quarter offiscal
2014
Change GAAP sales $ 541 $ 546 $ (5 ) GAAP sales growth (1.1
)% Impact of changes in exchange rates $ 13 Non-GAAP
sales $ 554 $ 546 $ 8 Non-GAAP sales growth 1.3 %
Year-to-date fiscal2015
Year-to-date fiscal2014
Change GAAP sales $ 1,136 1,136 $ — GAAP sales growth — %
Impact of changes in exchange rates $ 25 Non-GAAP
sales $ 1,161 $ 1,136 $ 25 Non-GAAP sales growth 2.3 %
13 Weeks Ended August 1, 2015
Sales GrowthGAAP
Impact
ofLocalCurrency
Sales Growth on aLocal
CurrencyBasis
Sales: North American Stores & Online (7.6 )% 2.8 % (4.8
)% North American Commercial 2.6 % 0.9 % 3.5 % International
Operations (17.2 )% 16.3 % (0.9 )% Total sales (5.4 )% 4.5 % (0.9
)%
26 Weeks Ended Ended August 1, 2015
Sales GrowthGAAP
Impact
ofLocalCurrency
Sales Growth on aLocal
CurrencyBasis
Sales: North American Stores & Online (8.9 )% 2.5 % (6.4
)% North American Commercial 2.6 % 0.8 % 3.4 % International
Operations (18.0 )% 16.4 % (1.6 )% Total sales (6.2 )% 4.3 % (1.9
)%
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 EndedAugust 1,
2015
GAAP sales growth (5.4 )% Impact of change in exchange rates (4.5
)% Impact of store closures (1.6 )% Non-GAAP sales growth 0.7 %
STAPLES, INC. AND SUBSIDIARIES
Reconciliation of Free Cash Flow Disclosures (Amounts in
Millions) (Unaudited) 26
Weeks Ended August 1, 2015
August 2, 2014 Net cash provided by operating activities $
300 $ 304 Acquisition of property and equipment (138 ) (110 ) Free
cash flow $ 162 $ 194
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/20150819005495/en/
Staples, Inc.Media Contact:Kirk Saville,
508-253-8530orInvestor Contact:Chris Powers or Kevin Barry,
508-253-4632/1487
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