NEW YORK (Reuters) - Staples Inc SPLS.O reported a stronger-than-expected quarterly profit on currency benefits and better sales to its business customers in North America, prompting the largest U.S. office supply chain to raise its profit outlook.
Smaller rivals have also shown some financial improvement lately, with Office Depot Inc ODP.N reporting a smaller-than-expected quarterly loss and OfficeMax Inc OMX.N posting better-than-expected earnings.
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“My read is that things are not necessarily as bad as people expected they were,” said Anthony Chukumba of BB&T Capital Markets, adding that the industry leader was the best-positioned of the three key companies in the sector.
Staples shares rose as much as 8.8 percent early on Wednesday but later pared gains and were up 1.3 percent at $14.40 in late morning.
“Staples is by far the safest way to play the office supply retailers,” Chukumba said, adding he liked the company’s management and clout with suppliers.
“Staples is treated and valued with retailers in the ‘may not be here in three years camp.’ We view that as ridiculous,” Credit Suisse analyst Gary Balter said in a note to clients.
The “contract business serves corporations and provides a value add not found elsewhere and retail stores serve small businesses and individuals with a wide range of products and services that go beyond paper,” Balter said.
Many investors look at office supply chains as a good gauge of the economy, as demand for their products is closely tied to white-collar employment rates. Sales at all three chains have suffered in the weak U.S. economy, and the companies continue to keep a tight rein on costs to offset weak demand.
CEO Ron Sargent said he did not see chances of a double dip in the U.S. economy. He sees no quick recovery either.
“I am not an economist at all. But from what I see, we have no chance at another recession. I think we are probably more likely to stay in economic purgatory for a while longer,” Sargent said.
For the full year, Staples continues to see sales rising at a low single-digit percentage rate.
Net income rose to $176.4 million, or 25 cents a share, in the second quarter ended July 30, from $129.8 million or 18 cents a share a year earlier.
Excluding a tax refund, it earned 22 cents a share. On that basis, analysts on average were expecting 19 cents a share, according to Thomson Reuters I/B/E/S.
Sales rose 5.2 percent to $5.82 billion, while analysts had expected $5.65 billion.
North American Delivery sales for the second quarter were $2.4 billion, an increase of 3.1 percent from the year-ago period. The North American Delivery unit caters mainly to business customers.
BACK-TO-SCHOOL SEASON IN FOCUS
Same-store sales, or sales at Staples stores open at least a year, were flat in the second quarter, which kicked off the key back-to-school selling season.
“In early July, we kicked off back-to-school in the Southeast markets and the season is off to a good start,” Sargent told analysts on a conference call.
The comments contrasted with those from smaller rival OfficeMax.
“While it is early in the back-to-school season, we have seen softer traffic trends versus the prior year,” OfficeMax Chief Executive Ravi Saligram said on August 2.
Staples, Office Depot and OfficeMax face a tough selling environment as budget-conscious shoppers now buy school supplies at mass merchants, dollar stores, drugstores and pretty much anywhere they can find decent bargains.
For the full year, Staples now sees net earnings of $1.42 a share to $1.48 a share. In May the company had cut its forecast to a range of $1.35 to $1.45 a share.