Staples beats Wall Street consensus, announces acquisitions in China, Europe

Tuesday, August 17th 2004, 1:35 pm
By: News On 6

FRAMINGHAM, Mass. (AP) _ Staples Inc.'s second-quarter profit grew 39 percent and beat Wall Street expectations as sales grew across Staples' office products portfolio, from retail stores to Staples' delivered products and European business.

The world's largest office products retailer on Tuesday also announced acquisitions of two supply businesses in Europe and a joint venture investment in China that marks Staples' first foray into the nation's $25 billion-a-year office products market.

For the three-month period ending July 31, Staples reported net income of $122.5 million, or 24 cents per share. That compared with a profit of nearly $88 million, or 18 cents a share, in the same period a year ago. Revenue grew 9 percent to $3.09 billion from $2.83 billion a year earlier.

Analysts surveyed by Thomson First Call expected 22 cents per share.

It was the 11th straight quarter that Staples' profit has increased 20 percent or more.

The company said North American retail sales grew 7 percent to $1.7 billion. Same-store sales, or sales at stores opened at least a year, rose 4 percent, down from 6 percent in the year-ago period.

North American delivery sales rose 11 percent to $980 million, with European sales rising 15 percent to $409 million. European sales rose a more modest 7 percent accounting for the weak dollar.

Staples is moving into the Chinese market through a minority interest investment in a Shanghai-based Internet and catalog office products delivery business called OA365.

In an interview with The Associated Press, Staples' chief executive and president, Ron Sargent, said the investment, while small, gives Staples an entry point into the world's fastest-growing office products market.

``It's incredibly fragmented, and it's incredibly fast-growing,'' Sargent said. ``Over time, we'll have the opportunity to play a bigger role there.''

In Europe, Staples is acquiring two businesses: Vienna-based Pressel Versand International and the office products division of Malling Beck A/S of Denmark. The moves will expand Staples' European catalog operations to 15 countries, complementing existing operations in Germany, France and Belgium.

Staples did not disclose terms of the Chinese and European deals, but Sargent said Staples' total investment in the three ventures was less than $40 million.

The investments ``allow us to plant some seeds for the future,'' Sargent said.

The company expects 20 percent earnings growth in the third quarter, in line with analysts' estimates. Because its second quarter performance beat the company's earlier expectations, Staples now expects to achieve earnings growth of about 24 percent for the full year. At the end of the previous quarter, Staples had forecast full-year earnings growth of more than 20 percent.

Staples, based in the Boston suburb of Framingham, operates nearly 1,600 stores across North America and Europe and has 60,000 employees. The 19-year-old company's chief rivals are Delray Beach, Fla.-based Office Depot and Cleveland-based OfficeMax, which was acquired in December by paper and wood products maker Boise Cascade Corp.