Staples, Inc. (SPLS)
Q4 2009 Earnings Call Transcript
March 2, 2010 8:00 a.m. ET

Executives

Laurel Lefebvre - Vice President, Investor Relations
Ronald L. Sargent - Chairman and Chief Executive Officer
Michael A. Miles, Jr. - President and Chief Operating Officer
John J. Mahoney - Vice Chairman and Chief Financial Officer
Demos Parneros – President, U.S. Stores
Joseph G. Doody – President, North American Delivery

Analysts

Christopher Horvers – JPMorgan Chase & Co.
Stephen Chick – FBR Capital Markets
Colin McGranahan – Sanford C. Bernstein & Co.
Michael Baker – Deutsche Bank
Matthew Fassler – Goldman Sachs
Bradley Thomas – KeyBanc Capital Markets
Dan Binder – Jefferies & Company
Kate McShane – Citi Investment Research
Oliver Wintermantel – Morgan Stanley
Gary Balter – Credit Suisse
Alan Rifkin – Bank of America/Merrill Lynch

Presentation

Operator

Good day, ladies and gentlemen and welcome to the fourth quarter and full-year 2009 Staples earnings conference call. My name is Onika and I will be your operator for today. At this time, all participants are in listen-only mode. We will have a question-and-answer session towards the end of the conference. But, if at any time during the call you need assistance, please press star zero and an operator will be happy to assist you. As a reminder this conference is being recorded for replay purposes. At this time, I would now like to turn the call over to Ms. Laurel Lefebvre, Vice President of Investor Relations. Please proceed.

Laurel Lefebvre

Good morning, everyone and thanks for joining us for our fourth quarter and fiscal 2009 earnings announcement. During today’s call, we will discuss some non-GAAP metrics to provide investors with useful information about our financial performance. Please see the financial measures and other data section of the investor information portion of Staples.com for an explanation and reconciliation of such measures and other calculations of financial measures that we use to analyze our business.

I would also like to remind you that certain information discussed on this call constitutes forward-looking statements for purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those discussed or referenced under the heading “Risk Factors” and elsewhere in Staples latest 10-K filed this morning.

Here to discuss Staples’ Q4 and fiscal ’09 performance and business outlook are Ron Sargent, Chairman and Chief Executive Officer, Mike Miles, President and Chief Operating Officer, and John Mahoney, Vice Chairman and Chief Financial Officer. Also joining us are Demos Parneros, President of U.S. Stores and Joe Doody, President of North American Delivery. Ron?

Ronald L. Sargent

Well, thanks Laurel and good morning, everybody. Thanks for joining us today. I am pleased to report strong fourth quarter results this morning and I am very happy that we are getting back to growing the business again.

During Q4, sales trends were encouraging particularly in North America where our retail business got back to positive comps. Staples’ Business Delivery grew sales for the first time in six quarters and our contract business showed nice signs of recovery. Both SBD and contract improved their top lines by more than 10 percentage points compared to last quarter. We are gaining traction in our international business and saw strength in European catalog and contract as well as in South America.

In terms of the Q4 headlines, total sales were up 4% versus last year to $6.4 billion. North American retail comps were positive for the first time in 10 quarters. Adjusted earnings per share increased 6% to $0.38 and we ended the year with record free cash flow of $1.8 billion.

By sticking to our recession plan of providing great service, managing expenses and investing in growth ideas we got a lot done in 2009. Our team made great progress on the integration of Corporate Express in North America and Europe. We took big steps towards building one global Staples brand. We laid a solid foundation for growth in tech services and copy and print businesses and we strengthened the leadership of our international business.

As we look to the year ahead we are pretty excited about our opportunities in 2010. While we are not planning for a big economic recovery this year we do plan on getting back to growing both the top and bottom lines. What are the biggest drivers of this growth? We will be investing in growing adjacent categories like facilities and break room supplies, business technology and copy and print, all while continuing to grow sales in core office supplies.

We will accomplish major milestones on the CE integration. We will continue to open a new store every week and we will dramatically improve the profitability of our international business. All the work we have done to respond to our customer’s needs positions us well to drive growth in our core offering while taking the business in new directions. I have never been more confident that we got the right people and the right plans to take full advantage of the opportunities we have in front of us.

Now turning to our business units starting with North American Delivery. Sales for the fourth quarter were $2.4 billion, down about 1% and while we are not quite back to growth in Delivery we are encouraged by the improving trends we saw throughout the quarter as the top line in each of our Delivery businesses improved sequentially. In Staples Business Delivery we grew the top line in the mid-single digits. In contract, sales declined in the low-single digits and in Quill the top line declined in the mid-single digits.