Staples, Inc. (Nasdaq: SPLS) (“Staples” or “the company”)
announced today the results for its second quarter ended July 29,
2017. Total company sales for the second quarter of 2017 were $3.9
billion, a decrease of three percent compared to the second quarter
of 2016. On a GAAP basis, the company reported net income from
continuing operations of $63 million, or $0.10 per diluted share,
for the second quarter of 2017. Second quarter 2017 results from
continuing operations include pre-tax charges of $10 million
primarily related to the proposed acquisition of the company by
funds managed by Sycamore Partners.
Total company comparable sales for the second quarter of 2017
declined one percent compared to the second quarter of 2016.
Excluding the impact of certain charges taken during the second
quarter of 2017, the company reported non-GAAP net income from
continuing operations of $76 million, or $0.12 per diluted
share.
Second Quarter 2017 Financial
Summary
Second Quarter (dollar amounts in millions,
except per share data)
2017 2016
Change Total company sales $3,905 $4,032 -3.1% Total
company comparable sales*^ -1.1% GAAP operating income $106
($167) $273 Non-GAAP operating income* $116 $136 -$20 GAAP
operating income rate 2.7% -4.2% NM Non-GAAP operating income rate*
3.0% 3.4% -41 basis points GAAP net income from continuing
operations $63 ($107) $170 Non-GAAP net income from continuing
operations* $76 $87 -$11 GAAP earnings per share from
continuing operations $0.10 ($0.17) NM Non-GAAP earnings per
diluted share from continuing operations* $0.12
$0.13 -8%
*Indicates a non-GAAP measure. Refer to “Presentation of
Non-GAAP Information” and the accompanying reconciliations for more
detailed information about these non-GAAP measures.
^Total company comparable sales excludes the impact of
acquisitions, divestitures, store closures and foreign currency
translation.
Second Quarter 2017 Highlights
- Grew mid-market sales in Staples
Business Advantage, the company’s North American contract business,
by 11 percent year over year.
- Improved profitability in North
American Retail with operating loss rate down 30 basis points year
over year.
- Maintained total company non-GAAP gross
profit rate year over year at 25.5 percent.
- Generated $279 million of cash provided
by operating activities, and spent $89 million in capital
expenditures, resulting in $190 million of free cash flow.
- Ended the second quarter of 2017 with
$1.2 billion in cash and cash equivalents.
Presentation of Non-GAAP Information
This press release presents certain results with and without
restructuring and related charges, long-lived asset impairment,
gains and losses related to the sale of businesses and assets, and
costs related to the proposed acquisition of Office Depot and the
proposed acquisition of Staples by funds managed by Sycamore
Partners. This press release also presents certain results with and
without the impact of acquisitions, divestitures, store closures,
and foreign currency translation. The presentation of these
results, as well as the presentation of free cash flow, are
non-GAAP financial measures that should be considered in addition
to, and should not be considered superior to, or as a substitute
for, the presentation of results determined in accordance with
GAAP. Management believes that the non-GAAP financial measures
assist management and investors to analyze the company’s
performance by providing meaningful information that facilitates
the comparability of underlying business results from period to
period. Management uses these non-GAAP financial measures to
evaluate the operating results of the company’s business against
prior year results and its operating plan, and to forecast and
analyze future periods. Management recognizes there are limitations
associated with the use of non-GAAP financial measures as they may
reduce comparability with other companies that use different
methods to calculate similar non-GAAP measures. Management
generally compensates for these limitations by considering GAAP as
well as non-GAAP results. In addition, management provides a
reconciliation to the most comparable GAAP financial measure.
About Staples, Inc.
Staples brings technology and people together in innovative ways
to consistently deliver products, services and expertise that
elevate and delight customers. Staples is in business with
businesses and is passionate about empowering people to become true
professionals at work. Headquartered outside of Boston, Mass.,
Staples, Inc. operates primarily in North America. More information
about Staples (NASDAQ: SPLS) is available at www.staples.com.
STAPLES, INC. AND
SUBSIDIARIES
Condensed Consolidated Balance
Sheets
(Dollar Amounts in Millions, Except
Share Data) (Unaudited)
July 29, 2017 January 28,
2017 ASSETS Current assets: Cash and cash
equivalents $ 1,199 $ 1,137 Receivables, net 1,342 1,337
Merchandise inventories, net 1,870 1,644 Prepaid expenses and other
current assets 189 236 Current assets of discontinued operations
154 912
Total current assets 4,754 5,266
Property and equipment, net 1,057 1,121 Intangible assets,
net of accumulated amortization 163 181 Goodwill 1,294 1,290 Other
assets 398 401 Noncurrent assets of discontinued operations —
12
Total assets $ 7,666 $ 8,271
LIABILITIES AND STOCKHOLDERS’ EQUITY Current
liabilities: Accounts payable $ 1,732 $ 1,528 Accrued expenses
and other current liabilities 941 974 Debt maturing within one year
524 519 Current liabilities of discontinued operations 119
636
Total current liabilities 3,316 3,657
Long-term debt 524 528
Other long-term obligations
431 390
Stockholders’ equity: Preferred stock, $.01
par value, 5,000,000 shares authorized; no shares issued — — Common
stock, $.0006 par value, 2,100,000,000 shares authorized; issued
and outstanding 957,954,510 and 656,713,321 at July 29, 2017 and
953,711,270 and 652,470,081 shares at January 28, 2017 1 1
Additional paid-in capital 5,102 5,067 Accumulated other
comprehensive loss (471 ) (1,053 ) Retained earnings 4,174 5,092
Less: Treasury stock at cost, 301,241,189 shares at July 29, 2017
and January 28, 2017 (5,419 ) (5,419 )
Total Staples, Inc.
stockholders’ equity 3,387 3,688 Noncontrolling interests 8
8
Total stockholders’ equity 3,395
3,696
Total liabilities and stockholders’ equity $
7,666 $ 8,271
STAPLES, INC. AND
SUBSIDIARIES
Condensed Consolidated Statements of
Income
(Amounts in Millions, Except Per Share
Data) (Unaudited)
13 Weeks Ended 26 Weeks
Ended July 29, 2017 July 30,
2016 July 29, 2017 July
30, 2016 Sales $ 3,905 $ 4,032 $ 8,055 $ 8,394 Cost of
goods sold and occupancy costs 2,908 3,007 5,979
6,257
Gross profit 997 1,025 2,076 2,137
Operating expenses: Selling, general and administrative 881
900 1,779 1,836 Merger termination fee — 250 — 250 Impairment of
long-lived assets 1 15 3 15 Restructuring charges 2 1 6 12
Amortization of intangibles 11 10 21 20
Total operating expenses 895 1,176 1,809
2,133 Gain (loss) on sale of businesses and
assets, net 4 (16 ) 3 (49 )
Operating
income (loss) 106 (167 ) 270 (45 )
Other income
(expense): Interest income 2 1 3 3 Interest expense (10 ) (18 )
(21 ) (60 ) Loss on early extinguishment of debt — (26 ) — (26 )
Other income, net 4 5 8 8 Income (loss)
from continuing operations before income taxes 102 (205 ) 260 (120
) Income tax expense (benefit) 39 (98 ) 92 (73 )
Income (loss) from continuing operations 63 (107 ) 168 (47 )
Discontinued operations: Pretax loss of discontinued
operations (8 ) (658 ) (12 ) (674 ) Loss recognized on
classification as held for sale — — (5 ) — Loss on sale — —
(908 ) — Total pretax loss of discontinued operations
(8 ) (658 ) (925 ) (674 ) Income tax expense — 1 3
4
Loss from discontinued operations, net of income
taxes (8 ) (659 ) (928 ) (678 )
Net income (loss)
$ 55 $ (766 ) $ (760 ) $ (725 ) Basic Earnings per
share Continuing operations $ 0.10 $ (0.17 ) $ 0.26 $ (0.07 )
Discontinued operations (0.02 ) (1.01 ) (1.42 ) (1.05 )
Consolidated operations $ 0.08 $ (1.18 ) $ (1.16 ) $ (1.12 )
Diluted Earnings per share Continuing operations $ 0.10 $ (0.17 ) $
0.26 $ (0.07 ) Discontinued operations (0.02 ) (1.01 ) (1.41 )
(1.05 ) Consolidated operations $ 0.08 $ (1.18 ) $ (1.15 ) $
(1.12 ) Dividends declared per common share $ 0.12 $ 0.12 $
0.24 $ 0.24 Comprehensive income (loss) $ 81 $ (852 ) $ (178
) $ (677 )
STAPLES, INC. AND
SUBSIDIARIES
Condensed Consolidated Statements of
Cash Flows
(Amounts in Millions)
(Unaudited)
26 Weeks Ended July 29, 2017
July 30, 2016 Operating Activities: Net loss $
(760 ) $ (725 ) Adjustments to reconcile net loss to net cash
provided by (used in) operating activities: Depreciation 155 193
Amortization of intangibles 21 30 Loss on sale of businesses and
assets, net 904 49 Interest and fees paid from restricted cash
account, net — 66 Impairment of goodwill and long-lived assets 11
660 Stock-based compensation 24 33 Deferred income tax expense 14
18 Other 7 4 Changes in assets and liabilities: (Increase) decrease
in receivables (17 ) 57 Increase in merchandise inventories (215 )
(196 ) Increase in prepaid expenses and other assets — (132 )
Increase in accounts payable 194 155 Decrease in accrued expenses
and other liabilities (63 ) (218 ) Increase (decrease) in other
long-term obligations 4 (5 )
Net cash provided by (used
in) operating activities 279 (11 )
Investing
Activities: Acquisition of property and equipment (89 ) (102 )
Proceeds from the sale of property and equipment 23 — Sale of
businesses, net 6 83 Increase in restricted cash — (66 )
Acquisition of businesses, net of cash acquired (7 ) —
Net cash used in investing activities (67 ) (85 )
Financing Activities: Proceeds from the sale of stock under
employee stock purchase plans 13 16 Proceeds from borrowings 7 182
Payments on borrowings, including payment of deferred financing
fees and capital lease obligations (8 ) (190 ) Proceeds from
issuance of commercial paper, net of repayments — 188 Cash
dividends paid (157 ) (155 ) Repurchase of common stock (3 ) (12 )
Net cash (used in) provided by financing activities (148 )
29 Effect of exchange rate changes on cash and cash equivalents (2
) 17
Net increase (decrease) in cash and cash
equivalents 62 (50 ) Cash and cash equivalents at beginning of
period 1,137 825
Cash and cash equivalents at the
end of the period $ 1,199 $ 775
STAPLES, INC. AND
SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP
Income Statement Disclosures
(Dollar Amounts in Millions, Except Per
Share Data)
(Unaudited)
For the non-GAAP measures related to
results of operations, reconciliations to the most directly
comparable GAAP measures are shown below for the second quarter of
2017 and second quarter of 2016 (amounts in millions, except per
share data):
13 Weeks Ended July 29, 2017
GAAP Adjustments 1
Non-GAAP Operating income $ 106 $ 10 $ 116 Interest
and other expense, net 4 — 4 Income before income
taxes 102 112 Income tax expense 39 39 Adjustments
2 —
(3 ) Adjusted income tax expense 39 36 Income
from continuing operations $ 63 $ 76 Effective
tax rate 38.0 % 32.0 % Income from continuing operations per
share: Diluted earnings per common share $ 0.10 $ 0.12
1. Includes $13 million of costs related to our strategic
initiatives ($11 million of which is included in Selling, general
and administrative expenses and $2 million of which is included in
Restructuring charges) and $1 million for impairment of long-lived
assets, partly offset by a $4 million gain on the sale of property
and equipment.
2. Includes $5 million of non-cash income tax expense related to
the impact of tax deficiencies associated with share-based payment
awards, and which relates to the adoption of a new accounting
pronouncement in the first quarter of 2017 that was not applied
retrospectively. This expense was partly offset by $2 million of
income tax benefit associated with the adjustments referred to in
footnote 1.
26 Weeks Ended July 29, 2017
GAAP Adjustments 1
Non-GAAP Operating income $ 270 $ 18 $ 288 Interest
and other expense, net 10 — 10 Income from continuing
operations before income taxes 260 278 Income tax expense 92
92 Adjustments
2 — (3 ) Adjusted income tax expense 92
89 Income from continuing operations $ 168 $
189 Effective tax rate 35.3 % 32.0 % Income
from continuing operations per common share: Diluted earnings per
common share $ 0.26 $ 0.29
1. Includes $18 million of costs related to our strategic
initiatives ($12 million of which is included in Selling, general
and administrative expenses and $6 million of which is included in
Restructuring charges) and $3 million for impairment of long-lived
assets offset by a net $3 million gain on the sale of property and
equipment.
2. Includes $8 million of non-cash income tax expense related to
the impact of tax deficiencies associated with share-based payment
awards, and which relates to the adoption of a new accounting
pronouncement in the first quarter of 2017 that was not applied
retrospectively. This expense was partly offset by $5 million of
income tax benefit associated with the adjustments referred to in
footnote 1.
13 Weeks Ended July 30, 2016
GAAP Impairment of long-lived assets
Merger-related costs Loss on
sale of businesses and assets, net
Litigation Costs related to restructuring
and strategic plans Non-GAAP Gross Profit
$ 1,025 $ — $ — $ — $ — $ 4 $ 1,029
Operating (loss) income (167 ) 15 250 16 16 6 136 Interest
and other expense, net 12 — (7 ) — — — 5 Loss on early
extinguishment of debt 26 — (26 ) — — — — (Loss)
income before income taxes (205 ) 131 Income tax benefit (98
) (98 ) Adjustments — 142 Adjusted income tax
(benefit) expense (98 ) 44 Loss (income) from
continuing operations $ (107 ) $ 87 Effective tax
rate 47.8 % 33.1 % Income from continuing operations per
common share: Diluted earnings per common share $ (0.17 ) $ 0.13
26 Weeks Ended July 30, 2016
GAAP Impairment of long-lived assets
Merger-related costs Loss on
sale of businesses and assets, net
Litigation Costs related to restructuring
and strategic plans Non-GAAP Gross Profit
$ 2,137 $ — $ — $ — $ — $ 4 $ 2,141 Operating
(loss) income (45 ) 15 272 49 16 17 324 Interest and other expense,
net 49 — (37 ) — — — 12 Loss on early extinguishment of debt 26
— (26 ) — — — — (Loss) income before income taxes
(120 ) 312 Income tax benefit (73 ) (73 ) Adjustments —
177 Adjusted income tax (benefit) expense (73 ) 104
Loss (income) from continuing operations $ (47 ) $
208 Effective tax rate 60.6 % 33.1 % Income
from continuing operations per common share: Diluted earnings per
common share $ (0.07 ) $ 0.32
Note that certain percentage figures shown in the tables above
may not recalculate due to rounding.
STAPLES, INC. AND
SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP
Sales Growth
(Unaudited)
Total Company Comparable Sales Growth Second
quarter of Fiscal 2017 GAAP sales growth (3.1 )% Impact of
foreign exchange (0.3 )% Impact of store closures (0.9 )% Impact of
acquisitions and divestitures (0.8 )% Comparable sales growth (1.1
)%
STAPLES, INC. AND
SUBSIDIARIES
Reconciliation of Free Cash Flow
Disclosures
(Amounts in Millions)
(Unaudited)
26 Weeks Ended July 29, 2017 Net cash provided
by operating activities $ 279 Acquisition of property and equipment
(89 ) Free cash flow $ 190
Free cash flow is not defined under U.S. GAAP. Therefore, it
should not be considered a substitute for income or cash flow data
prepared in accordance with GAAP and may not be comparable to
similarly titled measures used by other companies. The company
defines free cash flow as net cash provided by operating activities
less capital expenditures. It should not be inferred that the
entire free cash flow amount is available for discretionary
expenditures. The company believes free cash flow is a useful
measure of performance and uses this measure as an indication of
the company's ability to generate cash and invest in its
business.
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version on businesswire.com: http://www.businesswire.com/news/home/20170824005368/en/
Staples, Inc.Media Contact:Bill Durling,
508-253-2882orInvestor Contact:Scott Tilghman,
508-253-1487
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