Top office-products retailer Staples Inc on Tuesday
Staples, which refrained from providing any sales or earnings outlook, however reaffirmed its expectations for cost savings from its Corporate Express acquisition.
The results came nearly a month after rivals OfficeMax Inc
On a conference call with analysts, Staples said its back-to-school sales performance was off to a good start and it should be one of its busiest selling periods.
This year, the back-to-school shopping takes on even more importance for office-supply retailers as cutbacks in Corporate America have hurt sales to business customers.
Net earnings fell to $92.4 million, or 13 cents a share, in the second quarter that ended on August 1, from $150.2 million, or 21 cents a share, a year earlier.
Excluding a pretax integration and restructuring charge of $30 million, Staples earned 16 cents a share, in line with the average Wall Street forecast, according to Reuters Estimates.
While the industry leader saw weakness in higher ticket items including business machines and furniture, it saw improvement in sales of basic categories such as paper, ink and toner. The U.S. recession has hurt office-supplies retailers hard as consumers and small businesses curtail buying of nonessential goods.
Although customers were returning to its stores, they were still passing up discretionary items, the company said.
Many of Staples' customers have moved to lower margin on-contract products ... and this weighed on margins in the second quarter, Staples Chief Operating Officer Michael Miles said on a call with analysts.
Staples, which is poised to gain from any recovery in corporate spending with its acquisition of Corporate Express, said in July that it was seeing a rebound at its North American delivery unit that serves small businesses.
While sales rose 9 percent to $5.5 billion, both operating expenses and costs of goods sold increased in the quarter.
Although Staples managed to trim general and administrative costs and marketing spending, expenses related to labor and an increased amortization expense weighed on the company.
Given that the second derivative of sales is the key metric to focus on, Staples results are likely to support optimism in the group, JP Morgan analyst Christopher Horvers said in a note.
Sales trends at OfficeMax and Office Depot showed sequential improvement but not to this extent, indicating that Staples is leading the way and July was a better month versus April, he added.
North American retail sales fell 5 percent to $2 billion as sales at existing stores fell 5 percent, reflecting declines in average order size and weakness in durable goods such as business machines and furniture.
Staples, which bought Dutch rival Corporate Express in July last year, said it still expected to save up to $300 million annually over the three-year integration period.
Staples shares, which have risen about 26 percent since the start of 2009, slipped about 8 cents to $22.12 in morning Nasdaq trading.
(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn and Maureen Bavdek)