Staples Reveals 39% Drop in 1Q Profit

Staples Inc. reported a 39% decline in first-quarter profit, as sales continued to decline and store traffic dwindled, deepening the chain's challenges as it awaits regulatory approval for its takeover of rival Office Depot Inc.

Chief Executive Ron Sargent called results in line with the company's expectations. "We grew sales in our North American delivery businesses and stabilized profitability across the company, which reflects continued progress on our strategic reinvention," Mr. Sargent added.

For the current quarter, Staples expects to earn 11 to 13 cents a share and said sales will fall by an unspecified amount. The guidance excludes expected merger-related costs. Analysts are looking for 11 cents in per-share profit on $5.1 billion in revenues. Analysts' revenue estimate translates to a 2.6% expected decline from a year earlier.

Earlier this year, Staples agreed to buy Office Depot for $6.3 billion. Staples has been hit by shifts in office needs where basics like paper folders and printer toner are no longer in high demand and where discounters and Web retailers have invaded their turf. Both chains have suffered from declining sales for nearly a decade and Staples has faced pressure from activist investor Starboard Value LP, which pushed for the Office Depot deal.

The merger, if approved, would take the U.S. down to one chain of office-supply superstores from three in just a couple of years; in 2013, Office Depot acquired OfficeMax. Regulators blocked a proposed tie-up of Staples and Office Depot in 1997, but the companies point to a competitive landscape that has since changed.

In North America, Staples suffered a 5% sales drop at stores open at least a year, excluding the effect of currency-exchange rates, its 12th straight quarter of sales declines. Total North American sales dropped 10%. The company said sales were negatively affected by store closures and currency rates. Store traffic fell 2%, and the average order size declined 3%. Online sales grew 3% on a constant-currency basis, but that wasn't enough to offset the declines in the chain's store base.

A 7% decline in European same-store sales helped drive a 19% drop in the company's international revenue.

At Staples, "retail is still seeing pressure from store closures and we expect FX pressures as well as still-weak technology sales to temper top-line performance, consistent with recent trends and other company reports," analysts at B. Riley said in a research note this week.

In all for the first quarter, Staples reported a profit of $59 million, or nine cents a share, down from $96 million, or 15 cents, a year earlier.

Excluding certain items, like charges stemming from the Office Depot acquisition and other restructuring charges, per-share profit fell to 17 cents from 18 cents.

Revenue slid 6.9% to $5.3 billion.

Analysts projected 17 cents in earnings per share and $5.5 billion in sales.