Staples, Inc. (Nasdaq: SPLS) announced today the results for its
first quarter ended April 30, 2016. Total company sales for the
first quarter of 2016 were $5.1 billion, a decrease of three
percent compared to the first quarter of 2015. On a GAAP basis, the
company reported net income of $41 million, or $0.06 per diluted
share. First quarter 2016 results on a GAAP basis include pre-tax
charges of $66 million primarily related to costs associated with
the proposed acquisition of Office Depot and store closures, and
$32 million related to the pending sale of the company’s Print
Solutions business.
Total company sales for the first quarter of 2016 decreased one
percent compared to the first quarter of 2015 after excluding the
impact of changes in foreign exchange rates and store closures
during the past year. Excluding the impact of charges taken during
the first quarter of 2016, the company reported non-GAAP net income
of $109 million, or $0.17 per diluted share, versus first quarter
2015 non-GAAP net income of $109 million, or $0.17 per diluted
share.
“We delivered a solid first quarter and we made good progress on
our critical priorities,” said Ron Sargent, Staples’ chairman and
chief executive officer. “We grew sales in key categories beyond
office supplies, drove growth in our mid-market contract business,
and improved customer conversion in stores and online. We plan to
build on our momentum as we pursue our strategic plan to enhance
long-term value.”
First Quarter 2016 Highlights
- Reduced total company selling, general
and administrative expense as a percentage of sales by 28 basis
points on a GAAP basis, or 44 basis points on a non-GAAP basis
after excluding charges of $24 million during the first quarter of
2016 and $15 million during the first quarter of 2015.
- Improved total company operating income
rate by 27 basis points on a GAAP basis, or 14 basis points on a
non-GAAP basis after excluding charges of $67 million during the
first quarter of 2016 and $75 million during the first quarter of
2015.
- Grew sales in North American Commercial
one percent on a local currency basis.
- Grew operating income in North American
Commercial by $14 million and improved operating income rate by 63
basis points.
- Generated operating cash flow of $276
million and invested $44 million in capital expenditures resulting
in free cash flow of $232 million.
- Closed 14 stores in North America as
part of a previously announced plan to close approximately 50
stores in North America during 2016.
First Quarter 2016 Financial
Summary
First Quarter
(dollar amounts in millions, except per share data)
2016
2015
Change
Total company sales $5,101 $5,262 -3.1% Total company sales growth
excluding the impact of store closures and changes in foreign
exchange rates* -1.2% GAAP operating income $108 $98 $10
Non-GAAP operating income* $175 $173 $2 GAAP operating
income rate 2.1% 1.9% 27 basis points Non-GAAP operating income
rate* 3.4% 3.3% 14 basis points GAAP net income $41 $59 -$18
Non-GAAP net income* $109 $109 $0 GAAP earnings per diluted
share $0.06 $0.09 -33% Non-GAAP earnings per diluted share*
$0.17 $0.17
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 14 basis
points to 3.4 percent from the rate of 3.3 percent achieved during
the first quarter of 2015. This increase reflects reduced labor and
marketing expense. This was partially offset by lower product
margin rate in International Operations.
The company ended the quarter with $2.0 billion in liquidity,
including $946 million in cash and cash equivalents.
North American Stores and
Online
First Quarter
(dollar amounts in millions)
2016
2015 Change Sales $2,247 $2,372
-5.2% Comparable sales* -3% Comparable store sales -4% Staples.com
local currency sales growth 1% Operating income $62 $75 -$13
Operating income rate 2.8%
3.2% -40 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 2016 were $2.2 billion, a
decrease of five percent compared to the first quarter of 2015.
Store closures negatively impacted first quarter 2016 sales growth
by approximately two percent. Sales growth was also negatively
impacted by approximately one percent due to changes in foreign
exchange rates. Comparable sales, which combines comparable store
sales and Staples.com sales growth excluding the impact of changes
in foreign exchange rates, decreased three percent versus the prior
year. Sales declines in business machines, technology accessories,
computers and mobility, and ink and toner were partially offset by
growth in furniture, office supplies, facilities supplies, and copy
and print. Comparable store sales decreased four percent,
reflecting a two percent decline in average order size and a two
percent decline in traffic versus the prior year. Staples.com sales
were flat in U.S. dollars and grew one percent on a local currency
basis during the first quarter of 2016.
Operating income rate decreased 40 basis points to 2.8 percent
compared to the first quarter of 2015. This primarily reflects the
negative impact of lower sales on fixed expenses and lower product
margin rate in Staples.com. This was partially offset by reduced
marketing expense, improved retail product margin rate, and savings
related to a reduction in headcount versus the prior year.
North American Commercial
First
Quarter (dollar amounts in millions)
2016
2015 Change Sales $2,116
$2,108 0.3% Operating income $148 $134 $14 Operating income
rate 7.0% 6.4%
63 basis points
Sales for the first quarter of 2016 were $2.1 billion, flat in
U.S. dollars or an increase of one percent on a local currency
basis compared to the first quarter of 2015. This primarily
reflects growth in promotional products, facilities supplies, and
breakroom supplies, partially offset by declines in ink and toner,
and paper.
Operating income rate increased 63 basis points to 7.0 percent
compared to the first quarter of 2015. This improvement primarily
reflects lower labor costs and marketing expense.
International Operations
First
Quarter (dollar amounts in millions)
2016
2015 Change Sales $738
$782 -5.6% Operating income -$18 -$20 $2 Operating income
rate -2.4% -2.5%
13 basis points
Sales for the first quarter of 2016 were $738 million, a
decrease of six percent in U.S. dollars or three percent on a local
currency basis compared to the first quarter of 2015. This was
primarily driven by sales declines in Europe, partially offset by
double-digit growth in China. Comparable store sales in Europe
declined nine percent during the first quarter of 2016, primarily
reflecting a decrease in traffic versus the prior year.
Operating income rate for International Operations increased 13
basis points to an operating loss of 2.4 percent compared to the
first quarter of 2015. This reflects improvement in Australia,
China, and Europe.
Outlook
For the second quarter of 2016, the company expects sales to
decrease versus the second quarter of 2015. 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 2016. The company’s
earnings guidance excludes costs related to the company’s proposed
acquisition of Office Depot and costs associated with the
termination of the Office Depot merger agreement, as well as the
impact of ongoing store closures. For the full year 2016, the
company expects to generate approximately $600 million of free cash
flow excluding the impact of payments associated with financing for
the proposed acquisition of Office Depot and costs associated with
the termination of the Office Depot merger agreement. The company
plans to close at least 50 stores in North America in 2016.
Presentation of Non-GAAP Information
This press release presents certain results with and without
restructuring and related charges, long-lived asset impairment,
gains and losses related to the sale of businesses and assets, and
costs related to the proposed 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 the closure of
North American retail stores, and the potential related impact on
cash flow cannot be reasonably estimated.
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 retail stores and Staples.com help small business
customers make more happen by providing a broad assortment of
products, expanded business services and easy ways to shop, all
backed with a lowest price guarantee. Staples offers businesses the
convenience to shop and buy how and when they want - in store,
online, via mobile or though social apps. Staples.com customers can
either buy online and pick-up in store or ship for free from
Staples.com with Staples Rewards minimum purchase. Expanded
services also make it easy for businesses to succeed with in-store
Business Centers featuring shipping services and products, copying,
scanning, faxing and computer work stations, Tech Services,
full-service Print & Marketing Services, Staples Merchant
Services, small business lending and credit services.
Staples Business Advantage, the business-to-business division of
Staples, Inc., helps mid-market, commercial and enterprise-sized
customers make more happen by offering a curated assortment of
products and services combined with deep expertise, best-in-class
customer service, competitive pricing and state-of-the
art-ecommerce site. Staples Business Advantage is the one-source
solution for all things businesses need to succeed, including
office supplies, facilities cleaning and maintenance, breakroom
snacks and beverages, technology, furniture, interior design and
Print & Marketing Services. Headquartered outside of Boston,
Staples, Inc. operates throughout North and South America, Europe,
Asia, Australia and New Zealand. More information about Staples
(NASDAQ: 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 risks and uncertainties, including but not limited
to our ability to meet the changing needs of our customers; our
ability to successfully transform our business; industry, operating
and competitive pressures and global economic conditions, including
their impact on prices and demand for our products and services,
our financial condition and our results of operations; risks
related to international operations and fluctuations in foreign
exchange rates; compromises of our information security; changes in
our effective tax rate; our ability to retain qualified employees;
the impact of regulation and regulatory, investigative and legal
proceedings and legal compliance risks; and 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)
April 30, 2016 January 30,
2016 ASSETS Current assets: Cash and cash
equivalents $ 946 $ 825 Receivables, net 1,846 1,899 Merchandise
inventories, net 2,082 2,078 Prepaid expenses and other current
assets 415 310
Total current assets 5,289
5,112
Net property and equipment 1,552 1,586
Intangible assets, net of accumulated amortization 264 274
Goodwill 2,668 2,653
Restricted cash 2,500 —
Other
assets 542 547
Total assets $ 12,815
$ 10,172
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities: Accounts payable $ 2,031 $ 1,894
Accrued expenses and other current liabilities 1,272 1,353 Debt
maturing within one year 17 17
Total current
liabilities 3,320 3,264
Long-term debt, net of
current maturities 3,489 1,018
Other long-term
obligations 517 506
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 947,528,396 and
646,287,207 shares at April 30, 2016 and 946,964,792 and
645,723,603 shares at January 30, 2016 1 1 Additional paid-in
capital 5,017 5,010 Accumulated other comprehensive loss (982 )
(1,116 ) Retained earnings 6,864 6,900 Less: Treasury stock at
cost, 301,241,189 shares at April 30, 2016 and January 30, 2016.
(5,419 ) (5,419 )
Total Staples, Inc. stockholders’ equity
5,481 5,376 Noncontrolling interests 8 8
Total
stockholders’ equity 5,489 5,384
Total
liabilities and stockholders’ equity $ 12,815 $ 10,172
STAPLES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Amounts in Millions, Except Per Share Data)
(Unaudited) 13 Weeks Ended
April 30, 2016
May 2, 2015 Sales $ 5,101 $
5,262 Cost of goods sold and occupancy costs 3,813 3,915
Gross profit 1,288 1,347
Operating expenses:
Selling, general and administrative 1,122 1,172 Impairment of
long-lived assets — 22 Restructuring charges 11 41 Amortization of
intangibles 15 17
Total operating expenses
1,148 1,252 (Loss) gain related to sale of
businesses and assets, net (32 ) 3
Operating income
108 98
Other income (expense): Interest income 2 1
Interest expense (42 ) (16 ) Other income (expense), net 3 1
Income before income taxes 71 84 Income tax expense 30
25
Net income $ 41 $ 59
Earnings Per Common Share: Basic Earnings Per Common Share $ 0.06
$ 0.09 Diluted Earnings Per Common Share $ 0.06
$ 0.09 Dividends declared per common share $
0.12 $ 0.12 Comprehensive income $ 175
$ 82
STAPLES, INC. AND
SUBSIDIARIES Condensed Consolidated Statements of Cash
Flows (Amounts in Millions) (Unaudited)
13 Weeks Ended April 30, 2016
May 2, 2015 Operating Activities: Net income $ 41 $
59 Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation 98 101 Amortization of
intangibles 15 17 Loss (gain) related to sale of businesses and
assets, net 32 (3 ) Interest paid from restricted cash account, net
19 — Impairment of long-lived assets — 22 Stock-based compensation
17 16 Deferred income tax expense 6 — Other 3 3 Changes in assets
and liabilities: Decrease in receivables 48 69 Increase in
merchandise inventories (17 ) (53 ) Decrease (increase) in prepaid
expenses and other assets 9 (34 ) Increase in accounts payable 117
155 Decrease in accrued expenses and other liabilities (121 ) (67 )
Increase in other long-term obligations 9 15
Net
cash provided by operating activities 276 300
Investing Activities: Acquisition of property and equipment
(44 ) (60 ) Proceeds from the sale of property and equipment — 6
Increase in restricted cash (55 ) — Acquisition of businesses, net
of cash acquired — (9 )
Net cash used in investing
activities (99 ) (63 )
Financing Activities:
Proceeds from the exercise of stock options — 3 Proceeds from
borrowings — 1 Payments on borrowings, including payment of
deferred financing fees and capital lease obligations (5 ) (5 )
Cash dividends paid (78 ) (76 ) Repurchase of common stock (3 ) (1
)
Net cash used in financing activities (86 ) (78 ) Effect
of exchange rate changes on cash and cash equivalents 30 9
Net increase in cash and cash equivalents 121 168
Cash and cash equivalents at beginning of period 825 627
Cash and cash equivalents at the end of the period $
946 $ 795
STAPLES, INC. AND
SUBSIDIARIES Segment Reporting (Amounts in
Millions) (Unaudited) 13 Weeks Ended
April 30, 2016 May 2, 2015
Sales North American Stores & Online $ 2,247 $ 2,372
North American Commercial 2,116 2,108 International Operations 738
782 Total segment sales $ 5,101 $ 5,262
Business Unit Income (Loss) North American Stores
& Online $ 62 $ 75 North American Commercial 148 134
International Operations (18 ) (20 ) Business unit income 192 189
Stock-based compensation (17 ) (16 ) Impairment of long-lived
assets — (22 ) Restructuring charges (11 ) (41 ) Accelerated
depreciation related to restructuring activities — (4 ) (Loss) gain
related to sale of businesses and assets, net (32 ) 3 Interest and
other expense, net (37 ) (14 ) Merger-related costs (24 ) (11 )
Income before income taxes $ 71 $ 84
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 are shown below (amounts in millions,
except per share data):
13 Weeks Ended April 30, 2016 GAAP
Restructuringcharges
Loss related to sale of
business
Merger-relatedcosts
Non-GAAP Selling, general and
administrative expenses $ 1,122 $ — $ —
$ (24 ) $ 1,098 Operating income 108 11 32 24
175 Interest and other expense, net 37 (31 ) 6 Income
before income taxes 71 169 Income tax (benefit) expense 30
30 Adjustments — 30 Adjusted income tax (benefit)
expense 30 60 Net income $ 41 $ 109
Effective tax rate 42.2 % 35.5 % Diluted earnings per
common share $ 0.06 $ 0.17
13 Weeks
Ended May 2, 2015 GAAP
RestructuringCharges
AcceleratedDepreciation
Impairment
oflong-livedassets
Gain on saleof assets,
net
Merger-relatedcosts
Non-GAAP Selling, general and
administrative expenses $ 1,172 $ — $ (4 ) $ —
$ — $ (11 ) $ 1,157 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
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
First quarter of fiscal
2016
First quarter of fiscal
2015
Change GAAP sales $ 597 $ 596 $ 1 GAAP sales growth 0.2 %
Impact of changes in exchange rates $ 6 Non-GAAP
sales $ 603 $ 596 $ 7 Non-GAAP sales growth 1.2 %
13 Weeks Ended April 30,
2016
Sales GrowthGAAP
Impact
ofLocalCurrency
Sales Growth on a Local
Currency Basis
Sales: North American Stores & Online
(5.2)
%
(1.2)
%
(4.0)
%
North American Commercial 0.3 %
(0.4)
%
0.7 % International Operations
(5.6)
%
(2.4)
%
(3.2)
%
Total sales
(3.1)
%
(1.1)
%
(2.0)
%
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 Ended April 30,
2016
GAAP sales growth (3.1 )% Impact of change in exchange rates (1.1
)% Impact of store closures (0.8 )% Non-GAAP sales growth (1.2 )%
STAPLES, INC. AND SUBSIDIARIES Reconciliation of Free
Cash Flow Disclosures (Amounts in Millions)
(Unaudited) 13 Weeks Ended
April 30, 2016 May 2, 2015 Net
cash provided by operating activities $ 276 $ 300 Acquisition of
property and equipment (44 ) (60 ) Free cash flow $ 232 $
240
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/20160518005589/en/
Staples, Inc.Media Contact:Mark Cautela,
508-253-3832orInvestor Contact:Chris Powers/Scott Tilghman,
508-253-4632/1487
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