Staples have said that they are "disappointed" with their key North American Retail business following the release of their second quarter results on 21st August.

Overall, the company posted quarterly top line sales growth of 11% to $4.3 billion with net income also up by 11% year on year to $179 million.

However, the key North American Retail division, while posting a 5% sales increase thanks to the opening of 28 new stores, actually posted a comparable sales decrease of 2%, which CEO Ron Sargent described as "disappointing" during the company's investor conference call on 21st August. The company experienced lower sales in furniture, supplies, and business machines partially offset by strong sales in copy and print centres, laptop computers, ink, and software.

Sargent blamed the tough retail environment in the USA and admitted that he was now "worried" about consumer spending in the US in view of recent problems with the US housing and credit markets, and the company expects comp sales to remain slightly negative or, at best flat, for the full year. Regions biggest hit during the second quarter included Florida and Arizona, where sales were down "significantly", attributed to the housing market.

North American Retail initiatives

Mike Miles, Chief Operating Officer and head of North American Retail, said that Staples was investing in initiatives to drive customers to its stores. These include:

ramping up the customer loyalty programme, giving $10 discounts on ink, paper and copy purchases and focusing on the largest in-store category - ink - by offering $3 back on recycled cartridges.

driving traffic to stores during the back-to-school season through its "unique product offering".

merchandising initiatives, including a focus in September on security and ID theft issues with an assortment of special product displays and services.

the introduction of a new line of own-brand products called M by Staples, a higher end high quality range of stationery and office supplies, which will debut in the autumn with 35 SKU's including notebooks, bags and portfolios.

diverting some of its marketing budget from longer term brand awareness TV and sports marketing campaigns to the key SOHO customer segment.

North American Delivery "led the way" in Q2

While the company was not satisfied with its NAR sales, the quarterly performance of the North American Delivery business was described as "terrific", with the unit posting sales growth of 16% and operating income up by 18%. This growth was attributed to strong customer acquisition, improved margins due to significant reductions in logistics costs, with fulfilment centres opened in 2006 showing improved productivity, and a positive knock-on effect on the delivery business of new store openings.

The integration of American Identity is progressing as planned and Staples will be able to offer logoed merchandise to all contract customers during the third quarter.

Margins are also helped by customers' use of e-commerce tools, with 75% of NAD sales coming from internet orders. Overall, $1.3 billion in worldwide e-commerce sales were achieved in the second quarter, a 20% year-on-year increase.

International business developing in Europe and Asia

Staples was happy with the performance of its international business during the quarter.

International retail comps were up by 7% with increased traffic in all countries. Ron Sargent said that he was particularly happy with progress in the UK, where the focus on direct sourcing and own-brand development led to an improvement in margins.

International delivery saw sales grow in France, Spain, Italy, Scandinavia and the UK. Special mention was made of the French delivery business JPG which represents over 50% of all European delivery sales where a new website, improved systems and increased private label promotion led to improved sales.

Business in Asia is "making great progress". China is growing faster this year than last year; in Beijing and Shanghai, Staples' position as one of the exclusive suppliers for the 2008 Olympic Games has helped drive sales and margins. 7 new stores have opened in Guangzhou province this quarter, bringing the total to 24, and the company is ready to begin delivery operations in Shenzhen later this month.

In India, the new joint-venture business is reportedly off to a good start, with contract customers now being served in all major cities across the country, and retail operations expected to begin later this year.