Staples cautious after chill from winter storms

By @ibtimes on

Top U.S. office supply chain Staples Inc blamed winter storms for keeping shoppers away during the holidays and forecast a quarterly profit just below analysts' estimates.

The tepid sales in the fourth quarter ended on January 29 also highlighted uneven demand in the U.S. economy. January is typically the biggest sales month of the year for Staples, whose shares fell more than 1 percent.

Many investors look at office supply retailers as a barometer of economic health because demand for their products is closely tied to white-collar employment rates. Their sales have suffered as consumers and small businesses spend less.

Our medium-sized customer's average order size is improving, but purchase frequency remains a bit choppy, Chief Executive Officer Ron Sargent said on a call.

Sargent tied most of the sales weakness in the fourth quarter to inclement weather and added that business had recovered since the snow stopped in early February.

The challenging weather not only hurt sales and margin because of store and facilities closures, but it also caused us to step up promotional activity to try to catch up on sales. Sargent said.

About a third of Staples' store base is in the U.S. Midwest and Northeast, where the storms hit, Citi analyst Kate McShane wrote on Wednesday.

Despite the weak fourth quarter, some analysts still recommended Staples shares, citing company-specific reasons.

I think that Staples is the least risky way to play the office supply retailing space because they are the largest and the fastest-growing and the most profitable and the most consistent, BB&T Capital Markets analyst Anthony Chukumba said. He also praised Staples' management team.

Staples has consistently outperformed smaller rivals Office Depot and OfficeMax in the past two years. It stands to gain even more as it expands its high-margin copy and print and technology services, analysts have said. For a graphic comparing the valuation of shares of the three companies, click http://r.reuters.com/vet38r.

Staples said it expected sales to rise at a low single-digit percentage rate in the first quarter, with earnings of 30 cents to 32 cents a share. Analysts were expecting a profit of 33 cents.

On the call, Sargent said he was optimistic about Staples' plans for upcoming quarters, including the launch of the Motorola Xoom, Dell Streak, BlackBerry maker Research in Motion's PlayBook, HP TouchPad and other mobile computing devices at its stores.

The company, which expects a modest improvement in the economy in 2011, also backed its fiscal-year forecast calling for a sales rise in the low to mid single digits and earnings per share of $1.50 to $1.60.

Last month, OfficeMax missed quarterly sales expectations and gave a cautious outlook for 2011 as it sees little help from the U.S. economy. Office Depot also reported a decline in quarterly sales.

Staples' fourth-quarter net income rose to $274.7 million, or 38 cents a share, from $233.9 million, or 32 cents a share, a year earlier.

Excluding a restructuring expense, Staples earned 39 cents a share, missing the analysts' average estimate of 40 cents.

Sales rose about 0.1 percent to $6.42 billion, but came in below analysts' expectations of $6.48 billion. The weather hurt sales by about $70 million and earnings by about 3 cents a share in the fourth quarter.

Sales at North American stores open at least a year fell 2 percent due to both the weather and weak demand for computers.

Shares of Staples were down 1.4 percent at $20.56 in morning trading.

(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn and Derek Caney)

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