Staples profit falls 16% as corporate clients tighten belts
Corporations slashing orders for office supplies amidst a weakening economy sliced into Staples Inc.'s business as the Framingham chain yesterday reported a 16 percent drop in profit.
"The small businesses started cutting back a few quarters ago, and now we're seeing the cutbacks bleed into the larger corporate businesses," said Daniel Binder, an analyst with Jeffries & Co. in New York.
Sales growth at Staples' corporate delivery business, which increased at double-digit rates last year, slowed to 2 percent in the latest quarter ending Aug. 2. Companies reduced orders, particularly in categories such as furniture and office computers, against a backdrop of rising unemployment and gasoline prices. One of Staples' largest customers, which typically made monthly purchases totaling $700,000, only placed about $60,000 in orders over the past two months, according to Staples chief financial officer John Mahoney.
"That's a huge decline," Mahoney said. "We're seeing big companies trying to cut back in every area possible."
The three major office supply chains in the United States, which do business with thousands of companies big and small on a daily basis, offer a window into the economy, and the view, analysts say, isn't pretty.
Despite the disappointing results, Staples Inc., the world's largest office supplier, is still faring better than its competitors. Office Depot Inc. and OfficeMax Inc. have seen a rapid erosion of sales and declining profit margins. In the latest quarter, Staples' North American retail sales declined 1 percent to $2.1 billion as customers shopped less frequently and purchased fewer items, with weak sales of furniture, printers, digital cameras, and desktop computers.
Meanwhile, sales at rival OfficeMax dropped 6.7 percent to $872.7 million and Office Depot declined 6 percent to $1.4 billion. Sales at stores open at least a year dropped 7 percent at Staples, and 10 percent at Office Depot and OfficeMax in the second quarter.
The back-to-school season, one of the busiest shopping periods for office supply chains, has been more promotional than last year's as merchants attempt to appeal to anxious consumers, according to analysts. Earlier this summer, OfficeMax launched a "Power to the Penny" campaign with offers for single-cent glue and protractors, and Staples began running advertisements that empathize with consumers' concerns over rising food and fuel costs and promises to make school shopping more affordable.
"There's no question customers are being careful," Mahoney said.
Staples began cutting expenditures months ago to help keep down costs, including delaying hires and renovations, reducing employee travel, trimming advertising, and slowing store openings.
It is hopeful that its July acquisition of Dutch delivery firm Corporate Express NV will help aggressively expand revenues in Europe. Staples expects savings from consolidating purchasing, administration, and distribution to total $200 million to $300 million annually.
Shares of Staples stock rose 41 cents, or 1.66 percent, to close at $25.18 in trading yesterday.
Jenn Abelson can be reached at abelson@globe.com. 