Staples, Inc. (NASDAQ:SPLS) reported mixed 4Q2012 results, and offered guarded guidance for 2012. EPS of $0.46 vs. $0.41, excluding one-time items in both periods beating the Street by $0.01. Results in 4Q12 excluded charges for store closures, restructuring, accelerated trade-name amortization in Australia, early extinguishment of debt, and the termination of an India JV. Shares are down 4% on the disappointing earnings.

staples logo

Revenues were light, most notably in North American Retail, where SSS fell (5%). The firm guided 2013 to a range of $1.30-$1.35, vs the Street’s $1.43, with revenue up low single-digits on a 52/52 week basis below the Street. Staples, Inc. (NASDAQ:SPLS) also hiked its dividend by 9%.

  • Reported EPS of $0.14 included charges related to European store closures and restructuring, U.S. store closures and accelerated Australia tradename amortization.
  • Total Sales = $6.6B vs. $6.46B LY, or +3%; ex. the extra week, total sales (4)%.

NA Retail:

  • Revs = $3.3B or +3.1% vs. LY. Ex. the extra week, revs (4)%
  • Traffic declined (5)% y/y and average order size flat y/y.
  • revs +7% y/y. Ex. the extra week, revs (1)%.
  • Growth in tablets, E-readers, facilities and breakroom and copy and print were offset by lower computer, digital camera and software sales.
  • Operating Profit = $317M vs. $296M LY. Rate = 9.6% vs. 9.2% LY.
  • Lower incentive comp and marketing expense, partially offset by investments to drive growth in

NA Delivery:

  • Revs = $2.1B or +7.2% vs. LY. Ex. the extra week, revs (1)%
  • Operating Profit = $195M vs. $176M LY. Rate = 8.4% vs. 8.3% LY.


  • Revs = $1.2B or (3.9)% vs. LY.
  • More importantly, revs (4)% on a local currency basis.
  • Europe Comp = (9)%, driven primarily by lower traffic.
  • Operating Profit = $6M vs. $32M LY. Rate = 0.5% vs. 2.7% LY.
  • Driven by deleverage of fixed expenses in Europe and Australia and lower product margins in Europe.

Initial 2013 Guidance Provided:

  • Full-year 2013 sales: +LSD
  • Diluted EPS: $1.30 – $1.35
  • FCF: +$900M (proceeds used to repurchase shares throughout 2013)

Implications according to Goldman Sachs Results revealed soft sales, which were likely expected given similarly light results from Office Depot Inc (NYSE:ODP)/OfficeMax Incorporated (NYSE:OMX). Guidance is likely lower than underlying expectations, and will likely be viewed as a negative, given that the firm fell short of original guidance in 2012 (EPS of $1.39 vs. original guidance of $1.47-$1.49). Also, the firm did not reference the pending ODP/OMX merger, which is top-of-mind for investors, and will likely be a prominent topic on Staples, Inc. (NASDAQ:SPLS)’s conference call. The dividend hike does improve capital allocation.

Analysts from Citigroup note that they recently upgraded the stock from a Sell rating to a Neutral rating on the company’s potential to benefit from an ODP/OfficeMax Incorporated (NYSE:OMX) merger. They think a potential merger between Office Depot Inc (NYSE:ODP) and OMX would lead to store closures in overlap areas (Southeast and Midwest), making Staples, Inc. (NASDAQ:SPLS) the biggest beneficiary. However, they are still neutral to negative on the office supply industry given secular declines in paper products, mix shift towards lower margin (and more competitive) technology products, weak macro environment in Europe, and intensifying product competition from online retailers.