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Staples profit higher; keeps outlook

20/05/2008 - 15:48
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STAPLES INC 10,250 +0,10%

NEW YORK (Reuters) - Staples Inc , the No. 1 U.S. office supplies retailer, reported a higher quarterly profit on Tuesday that matched Wall Street's expectations, and stood by its outlook for the full year.

The retailer, which has launched a hostile bid to buy smaller Dutch rival Corporate Express NV , warned it expects weak economic conditions to persist through 2008, and that it could not say when things would start to look up.

Still, its shares rose as much as 1.9 percent, which one analyst said was due to its implied per-share annual outlook that was slightly above consensus.

STAPLES(SPLS.NQ)earlier forecast mid single-digit sales growth and high single-digit earnings growth for the full year, excluding the impact of a litigation settlement in 2007.

That, Sanford Bernstein analyst Colin McGranahan said, implied an outlook in the range of $1.52 to $1.55 a share. Analysts, on average, expect $1.51 per share, according to Reuters Estimates.

"We believe general expectations heading into the report were relatively low, with concerns around the sector and outlook given weakness in the environment," McGranahan wrote in a note.

Earnings were $212 million, or 30 cents per share, in the first quarter that ended May 3, compared with $209 million, or 29 cents per share, in the year-earlier period.

Quarterly sales rose 6 percent to $4.9 billion. While international same-store sales rose 4 percent in the quarter, North American retail same-store sales fell 6 percent.

"When you report a (negative 6 percent) same-store sales, the monthly trend is bad, bad, and bad," Chief Executive Ron Sargent said during a conference call.

But, he added, "I do feel like we're in the trough and the general direction is up from here."

Like smaller rivals Office Depot Inc and OfficeMax Inc , Staples' sales have weakened in recent quarters as slowing job growth, the U.S. housing downturn and the credit crunch have forced small businesses to cut spending.

Product categories that suffered the most, Staples noted, were business machines and furniture, which include higher-priced, discretionary items.

For the second quarter, Staples forecast earnings to be flat with the year-ago period.

The company said it opened 35 stores in the first quarter and had plans for about 100 more in the year.

CORPORATE EXPRESS BID

The retailer is in the process of trying to acquire Corporate Express, a Netherlands-based wholesaler of office supplies. Last week, Corporate Express rejected a sweetened 8 euro-per-share offer, saying it undervalued the company, but said it was willing to talk.

The equity value of the offer is 1.46 billion euros, or about $2.34 billion, based on the offer price of 8 euros a share for about 182.848 million shares outstanding.

Staples cited Corporate Express' unwillingness to negotiate, as it launched its hostile bid.

Staples officials said during the conference call that Corporate Express' reluctance toward the deal was "kind of surprising to us given the trajectory of their business and the fact that our offer represents a 90-percent premium over where their stock was trading prior to our involvement."

Staples has already secured a $3 billion credit line to finance its offer.

Staples' shares were up 29 cents at $23.86 in morning trading on the Nasdaq, after rising as high as $24.02 earlier.

(Reporting by Aarthi Sivaraman; Editing by Maureen Bavdek and Dave Zimmerman)


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