This is a summary of the fourth quarter fiscal 2008 earnings call as presented by Staples, Inc. (SPLS) on March 11, 2009
Management
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Chairman and Chief Executive Officer: Ron Sargent
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President and Chief Operating Officer: Mike Miles
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President, International: Peter Ventress
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Vice Chairman and Chief Financial Officer: John Mahoney
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President, U.S. Stores: Demos Parneros
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President, North American Delivery: Joe Doody
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Vice President, Investor Relations: Laurel Lefebvre
Key Investors Issues:
- Net income declined 19 % year over year to $805 million.
- The firm returned $296 million to shareholders through a $231 million dividend and $65million in share repurchases.
- Staples acquired Corporate Express in July 2008 for $4.4 billion net of cash acquired.
Full Year Highlights
- Total company sales were up 19% to $23.1 billion.
- Adjusted earnings per share declined 9% to $1.29 and that compares to last year''s $1.42.
- Staples opened 106 stores and closed nine.
Fourth Quarter Highlightss
Sales were up 16% versus last year, to $6.2 billion. This includes $1.6 billion of Corporate Express sales.
- Staples tightened its capital spend, cutting almost a third of the original capital expenditure plan.
- Inventory per store was reduced by 17%, and as a result, the firm generated record free cash flow of more than $1.3 billion during the year.
- Earnings per share adjusted for special charges declined 23% to 36 cents compared to last year''s 47 cents.
Staples made some tough decisions across the board during 2008 in response to the current environment.
- The firm reduced headcount, aggressively managed expenses in its stores and warehouses, froze salaries for senior management, and the firm did not pay out bonuses to the corporate staff.
- the firm is now about 8 months into the integration of Corporate Express and is on track to achieve $300 million of annual synergies by the end of 2011.
North American Delivery sales increased 43% including Corporate Express and declined 10% for the core business, 9% in local currency.
- Operating margin in each of Staples'' three core business segments increased, with core NAD reaching an all-time high operating margin of more than 12%.
- The firm benefited primarily from leverage in marketing expenses and G&A.
- Including the impact of the lower-margin Corporate Express business, NAD margin declined 303 basis points to 8.9%.
Within North American Delivery, Staples Business Delivery and Quill experienced double-digit sales declines.
- This reflecting lower sales per existing customer, somewhat offset by customer acquisition, which remains positive.
- In its Fortune 1000 business, industries like financial services remained weak and most other sectors saw big sequential declines relative to earlier in the year.
- Customers in the contract business are buying more of the basic commodity items for which they have negotiated favorable prices which is squeezing gross margins.
Across all businesses in NAD, demand for furniture and technology remains very soft, while consumables like ink, toner and paper are performing much better.
- Operational changes are under way to rebrand trucks, buildings and driver uniforms. The firm has begun to deliver some Staples brand products to Corporate Express customers.
- In North American Retail, sales were $2.4 billion, down about 14% or 10% in local currency versus fourth quarter of 2007. Same-store sales were down 13%.
Traffic was negative, but sharply lower ticket was the primary factor in the comp decline.
- Purchases of higher-ticket furniture and technology hardware have dropped sharply.
- Anticipating this trend, Staples reduced marketing spend and carefully managed promotional intensity as it focused on preserving the bottom line instead of driving sales of these lower margin technology products.
- As a result, durables comped down about 20%.
Consumables fared somewhat better, down in mid single digits, and there is relative strength in the destination categories of ink and paper.
