Staples 1Q profit up as small businesses buy more

By the Associated Press | May 18, 2011 | 7:00 AM EDT

FRAMINGHAM, Mass. (AP) — Staples Inc.'s first-quarter profit rose 5 percent due to better sales overseas and increased buying by small businesses in North America.

But the nation's largest office supply retailer said Wednesday that the results were softer than expected, and the company cut its full-year earnings guidance. It earnings outlook for the second quarter and the year are below Wall Street estimates.

Its stock fell 78 cents, or 4 percent, to $18.87 in pre-market trading.

Staples reported net income of $198.2 million, or 28 cents per share, for the quarter ended April 30, up from $188.8 million, or 26 cents per share, a year ago.

Analysts polled by FactSet expected earnings of 32 cents per share.

Revenue rose 2 percent to $6.18 billion from $6.06 billion a year ago. Wall Street was looking for revenue of $6.2 billion.

Revenue in stores open at least a year dipped 1 percent, mostly on a decline in Canadian retail customer traffic. The measure is considered a key gauge of a retailer's health because it excludes stores that open or close during the year.

Revenue in the North American delivery segment, which serves small business, increased 2 percent partly on sales of break room supplies and paper.

International revenue climbed 4 percent, while North American retail revenue edged up 1 percent.

Office suppliers are slowly recovering from the recession, as shoppers and small businesses go back to spending more on office supplies.

While momentum is building at Staples, the company remains cautious.

"Our first quarter results show that we're making good progress on our key growth initiatives and we're gaining share in North America, but at a cost to our bottom line," Chairman and CEO Ron Sargent said in a statement.

Staples, based in Framingham, Mass., now expects 2011 earnings of $1.35 to $1.45 per share. Its prior forecast was for earnings of $1.50 to $1.60 per share.

The chain maintained its outlook for a low single-digit increase in full-year revenue.

For the second quarter, Staples anticipates earnings of 18 cents to 20 cents per share, with revenue flat to slightly higher than the prior-year period.

Analysts predict full-year earnings of $1.53 per share and second-quarter earnings of 26 cents per share.

Staples operates in 26 countries throughout North and South America, Europe, Asia and Australia.