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Staples Profit Falls 74% as Sales Rise

The retailer's earnings drop to $24.8 million on accounting changes for discounts from suppliers.

May 21, 2003|From Bloomberg News

Staples Inc., the world's largest office-supplies retailer, said Tuesday that first-quarter earnings fell 74% because of a change in how it accounts for discounts from suppliers. Sales rose at the fastest pace in two years, helped by acquisitions and new business customers.

The company said it received an informal inquiry from the Securities and Exchange Commission. The agency is examining how major retailers in the Northeast receive allowances, rebates and other incentives either directly or indirectly from vendors, Staples said in a filing.

Staples added 2,700 large corporate accounts in the quarter. Chief Executive Ronald Sargent is getting rid of some items marketed to individuals such as inexpensive computers to make room for products favored by businesses, which tend to shop more often. He also has remodeled stores, and bought medical office-supply and European catalog businesses to expand the retailer's offerings.

Net income fell to $24.8 million, or 5 cents a share, from $93.9 million, or 20 cents, a year earlier. Earnings were reduced by a $62-million write-off for the accounting change. Sales in the period ended May 3 rose 15% to $3.15 billion, Staples said.

Staples changed its accounting practices to record rebates from vendors as part of the cost of goods sold, the company said. The retailer previously included the amount in its marketing and inventory expenses.

Shares of Framingham, Mass.-based Staples fell 84 cents to $18.90 on Nasdaq.

Excluding the write-off, profit rose to $86.5 million, or 18 cents a share, from $64.9 million, or 14 cents, the company said. On that basis, analysts surveyed by Thomson First Call forecast Staples to earn 17 cents. Some investors may have been disappointed that results weren't stronger, analysts said.

Profit this quarter, excluding certain costs, will match the 16-cent-a-share estimate of analysts polled by Thomson First Call, Staples said. Sales will increase in the "low double-digit percentage" range.

Staples has exceeded analysts' forecasts in six straight quarters. The company also beat analysts' first-quarter sales forecast of $3.10 billion. Year-earlier sales were $2.74 billion.

"We had a pretty strong quarter," Sargent said. The company appears to be taking market share from office suppliers at its stores and in its direct sales to large companies, Sargent said.

Staples reiterated its forecast for a 20% increase in earnings per share this year as it opens as many as 90 North American stores and remodels 50 others.

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