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Staples, Inc. Announces Third Quarter 2015 Performance

The following excerpt is from the company's SEC filing.

FRAMINGHAM, Mass.--(BUSINESS WIRE)--November 18, 2015--Staples, Inc. (Nasdaq: SPLS) announced today the results for its third quarter ended October 31, 2015. Total company sales for the third quarter of 2015 were $5.6 billion, a decrease of six percent compared to the third quarter of 2014. On a GAAP basis, the company reported net income of $198 million, or $0.31 per diluted share. Third quarter 2015 results on a GAAP basis include pre-tax charges of $40 million related to the acquisition of Office Depot, as well as $28 million primarily related to restructuring activities.

Total company sales for the third quarter of 2015 were flat compared to the third quarter of 2014 after excluding the impact of store closures during the past year and changes in foreign exchange rates. Excluding the impact of charges taken during the third quarter of 2015, the company reported non-GAAP net income of $226 million, or $0.35 per diluted share, compared to third quarter 2014 non-GAAP net income of $236 million, or $0.37 per diluted share.

“We’re driving solid sales and earnings growth in our North American Commercial business, and stabilizing results in North American Stores and Online,” said Ron Sargent, Staples’ chairman and chief executive officer. “Our strategic reinvention is on track, and we look forward to accelerating the transformation of Staples with the acquisition of Office Depot.”

Third Quarter 2015 Highlights

Grew sales in North American Commercial one percent in U.S. dollars, or two percent on a local currency basis.

Increased total company gross profit as a percentage of sales by 44 basis points on a GAAP basis, or 29 basis points after excluding charges related to inventory write-downs of $1 million during the third quarter of 2015 and $11 million during the third quarter of 2014.

Improved total company operating income as a percentage of sales by 18 basis points on a GAAP basis, or 21 basis points after excluding charges of $40 million during the third quarter of 2015 and $41 million during the third quarter of 2014.

Grew operating income by $13 million and improved operating income rate by 56 basis points during the third quarter of 2015 in North American Commercial.

Secured approximately $50 million of annualized cost savings during the third quarter of 2015.

Secured more than $450 million of annualized cost savings since the beginning of 2014, as part of a previously announced plan to eliminate at least $500 million of annualized costs in 2014 and 2015 combined.

Closed 18 stores in North America during the third quarter of 2015 and closed 230 stores in North America since the beginning of 2014.

Third Quarter 2015 Financial Summary

(dollar amounts in millions, except per share data)

Change

Total company sales

$5,593

$5,962

-6.2%

Total company sales growth excluding the impact of store

closures and changes in foreign exchange rates*

-0.4%

GAAP operating income

$318

$328

-$10

Non-GAAP operating income*

$358

$369

-$11

GAAP operating income rate

5.7%

5.5%

18 basis points

Non-GAAP operating income rate*

6.4%

6.2%

21 basis points

GAAP net income

$198

$217

-$19

Non-GAAP net income*

$226

$236

GAAP earnings per diluted share

$0.31

$0.34

-9%

Non-GAAP earnings per diluted share*

$0.35

$0.37

-5%

*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 21 basis points to 6.4 percent from an operating income rate of 6.2 percent achieved during the third quarter of 2014. This increase reflects improved product margin rate in North American Stores and Online and North American Commercial, as well as reduced labor expense in North American stores. This was partially offset by investments in sales force to drive growth in categories beyond office supplies in North American Commercial, increased delivery expense in North American Stores and Online, as well as lower product margin rate in International Operations.

The company generated operating cash flow of $703 million and invested $215 million in capital expenditures year to date, resulting in free cash flow of $488 million. The company ended the quarter with $1.9 billion in liquidity, including $782 million in cash and cash equivalents.

(dollar amounts in millions)

Sales

$2,613

$2,834

-7.8%

Comparable sales*

-2%

Comparable store sales

Staples.com local currency sales growth

1%

Operating income

$201

$218

-$17

Operating income rate

7.7%

-1 basis point

*Comparable sales includes comparable store sales and Staples.com sales growth excluding the impact of changes in foreign exchange rates.

Sales for the third quarter of 2015 were $2.6 billion, a decrease of eight percent compared to the third quarter of 2014. Sales growth was negatively impacted by approximately four percent due to changes in foreign exchange rates. Store closures also negatively impacted third quarter 2015 sales growth by approximately three percent. Comparable sales, which combines comparable store sales and Staples.com sales growth excluding the impact of changes in foreign exchange rates, decreased two percent versus the prior year. Sales declines in mobility, business machines, technology accessories, and ink and toner were partially offset by growth in office supplies, copy and print, and furniture. Comparable store sales decreased two percent, reflecting a one percent decline in average order size and a one percent decline in traffic versus the prior year. Staples.com sales declined two percent in U.S. dollars and grew one percent on a local currency basis during the third quarter of 2015.

Operating income rate decreased 1 basis point to 7.7 percent compared to the third quarter of 2014. This primarily reflects increased delivery expense, increased marketing expense as a percentage of sales, and the negative impact of lower sales on fixed expenses. This was offset by improved product margin rate and reduced labor and rent expense in retail stores.

$2,173

$2,158

0.7%

$172

$159

$13

7.9%

7.4%

56 basis points

Sales for the third quarter of 2015 were $2.2 billion, an increase of one percent in U.S. dollars or two percent on a local currency basis compared to the third quarter of 2014. This primarily reflects growth in facilities supplies, promotional products, breakroom supplies, and furniture...


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