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Staples Reports 47% Increase in Profit

Chief executive credits improvements at stores and the ability to draw more new customers.

August 20, 2003|From Reuters

Office supply retailer Staples Inc. said Tuesday that its fiscal second-quarter earnings rose 47%, topping Wall Street estimates, as demand from small businesses boosted sales and operating margins improved.

The retailer, whose shares rose as much as 12%, forecast that full-year profit would exceed analysts' estimates. One analyst upgraded Staples stock to a "strong buy" after the report.

Staples, whose archrival is Office Depot Inc., said net income rose to $87.8 million, or 18 cents a share, in the quarter ended Aug. 2 from $59.6 million, or 13 cents, a year earlier. Analysts on average had expected Staples to earn 16 cents a share.

Chief Executive Ron Sargent said the strong results stemmed more from better execution in its stores and its success in attracting more new customers than from a significant improvement in economic conditions.

"We've spent a lot of time and energy on making it easy for our customers to shop. Our back-to-school selling [season] also started very strongly," he said.

To boost sales, Staples has been improving lighting and product presentation, hoping to make its nearly 1,500 stores more shopper-friendly. Staples also has boosted marketing to small businesses that use a greater number of more-profitable items such as ink cartridges.

U.S. Bancorp Piper Jaffray Inc. analyst Reed Anderson upgraded Staples stock to "strong buy" from "outperform." He said its results "mark an inflection point" for the stock, with solid evidence that operating changes and strategic initiatives were boosting sales and profit.

Quarterly sales rose to $2.87 billion from $2.43 billion a year ago, while North American sales at stores open at least a year rose 6%.

Staples, based in Framingham, Mass., said it expects full-year profit of $1.09 a share, compared with the average analyst estimate of $1.05. The profit forecast is on a pro forma basis, which often reflects the effects of such items as acquisitions.

For its third quarter, Staples forecast profit of 32 cents a share, the same as analysts' average estimate.

Shares of Staples on Tuesday rose $2.15 to $22.53 on Nasdaq. During the session, shares hit a new 52-week high of $22.90, compared with $21.02 set in May.

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