Staples Swings to Q3 Loss on Restructuring Charges (SPLS)

Before the market opened yesterday, office supplies chain Staples (NASDAQ: SPLS) reported a net loss for the fiscal 2012 third quarter compared to a net profit in the comparable period of 2011. However, the reported earnings beat analysts’ estimates. The company also issued optimistic fiscal 2012 full-year revenue and earnings guidance.

The Massachusetts-based Staples offers computers and office furniture under Staples and Quill brands. The company also provides copy and print services.

Total company sales for the fiscal 2012 third quarter decreased 2% to $6.35 billion from $6.48 billion in the prior year’s corresponding quarter. The revenue estimate of analysts was $6.45 billion for the third quarter of 2012.

The net loss from continuing operations for the third quarter was $568.70 million, or $0.85 per share, compared to a net profit from continuing operations of $323.80 million, or $0.46 per share, in the similar period of fiscal 2011.

For the fiscal 2012 third quarter, the company incurred impairment and restructuring charges of $841.39 million compared to none in the third quarter of 2011.

Excluding charges, the non-GAAP net income from continuing operations for the fiscal 2012 third quarter was $310 million, or $0.46 per share. The earnings estimate of analysts was $0.45 per share for the third quarter.

The net loss for the reported quarter was $596.25 million, or $0.89 per share, against a net profit of $326.38 million, or $0.47 per share, in the third quarter of fiscal 2011.

Earlier in March 2012, Staples announced an increase in the quarterly dividend by 10%. The news reflected in the share price, which registered a new 52-week high of $16.93 per share in March 2012. From that point, Staples started its downward journey. The poor fiscal 2012 first-quarter result derived from economic weakness in the U.S. and Europe contributed to the slide in the share price to $13.07 on May 18. Without any formidable event that would impact the top or bottom line, the share price continued to trade in the range of $12.00 to $13.00 until July 2012. The share price crossed the $13.00 mark in early August in anticipation of better performance. However, on August 15, the investors were provided with a report card that showed a 32% decline in quarterly earnings on a year-over-year basis. In addition, the company also lowered its profit outlook for 2012. A day later, Citi showed the 52-week low path to Staples by downgrading the stock from “neutral” to “sell”. As investors deserted, the stock fell to a new yearly low of $10.57 on August 28.

A week later “The Street Ratings” reiterated the “hold” rating for Staples. This enabled the share price to gain around a dollar to reach $12.35 on September 24. A day later, Staples announced its intention to shut down 60 stores to save $250 million a year. The anxious market pushed Staples’ share price back to $11.00.

Yesterday, the share price opened at $11.78, up 4% from the previous close of $11.25. Within half an hour, the share price fell to $11.45 when traders took advantage of the positive gap. However, the share price made a comeback to $11.55 by noon. The second half of the day saw the share price being pushed back to $11.41 and bounce back again to $11.60. With equal momentum on either side, the stock was unable to break away from the trading range of $11.50 to $11.60 per share.

For the full year 2012, Staples expects sales to be flat compared to the prior year. The company reported fiscal 2011 revenue of $25.02 billion. As of now, the revenue estimate of analysts is $24.77 billion for fiscal 2012.

Staples anticipates fiscal 2012 non-GAAP earnings per share from continuing operations to increase in the low single-digits compared to non-GAAP earnings of $1.37 per share reported in 2011. The earnings estimate of analysts is currently $1.36 for the full year 2012.

Staples ended yesterday’s trading session at $11.55, up $0.30 0r 2.6% on a volume of 23.1 million shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.