Staples cuts outlook on weak global demand

Last Updated: Wed, Aug 15, 2012 13:10 hrs

By Dhanya Skariachan

REUTERS - Staples Inc reported lower-than-expected quarterly results on weak demand in North America, Europe and Australia, prompting the largest U.S. office supply chain to cut its profit and sales forecasts for the year.

Current expectations for the year assume slower growth in the U.S. economy and continued weakness in Europe, Staples said on Wednesday. Its shares fell nearly 13 percent.

Many investors look at office supply retailers as a barometer of economic health because demand for their products is closely tied to white-collar employment rates.

"The weakness in Europe was not a surprise, but the deterioration in the U.S. was more significant than anticipated," Janney Capital Markets David Strasser said.

He tied the weakness in Staples' home turf to the slowdown in the U.S. economy, anemic employment trends and rising competition.

Besides its office supply peers, Staples faces tough competition from mass merchants such as Wal-Mart Stores Inc , drugstores, dollar stores and online retailer Inc .

For the year, Staples said it expected sales to stay flat and earnings per share rising only at a low single-digit percentage rate from last year's $1.37. Previously, it had forecast growth in the low single digits for sales and in the high single digits for earnings per share.

Sales fell 5.5 percent to $5.50 billion in the second quarter ended on July 28, well below the analysts' average estimate of $5.72 billion.

International sales dropped 18 percent to $1.1 billion, hurt by weakness in Europe, which is reeling from an economic crisis, and lackluster demand in Australia.

Staples' news came after Office Depot Inc , the No. 2 U.S. office supply chain, reported a wider-than-expected quarterly loss last week on tepid demand in Europe and the United States. Third-ranked OfficeMax Inc has said it expects its third-quarter sales to be flat or just slightly higher than a year earlier.

Sales at these chains have suffered as corporate customers and other shoppers cut back on discretionary spending amid uncertainty in the global economy. As a result, the companies have had to rely on cost cuts to boost earnings in recent quarters.

Graphic on Staples and peers

Staples' net income fell to $120.4 million, or 18 cents a share in the second quarter, from $176.4 million, or 25 cents a share, a year earlier. Analysts on average were expecting a profit of 22 cents, according to Thomson Reuters I/B/E/S.

Sales at stores open at least a year fell 2 percent in North America, as customer traffic fell and average order size was flat. Sales of computers and core office supplies were particularly weak, Chief Executive Officer Ron Sargent said.

Shares of Staples were down 12.8 percent at $11.74 in trading before the market opened.

(Reporting by Dhanya Skariachan in New York; Editing by Lisa Von Ahn)

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