Staples results disappoint on weak global demand

The company's net income fell to $120.4 million in Q2 from $176.4 million a year earlier

Staples Inc reported lower-than-expected quarterly results on weak demand in North America, Europe and Australia, prompting the largest US office supply chain to forecast flat sales for the fiscal year. Its shares fell more than 12 percent.

Current expectations for the year assume slower growth in the U.S. economy and continued weakness in Europe, Staples said on Wednesday.

Many investors look at office supply retailers as a barometer of economic health because demand for their products is closely tied to white-collar employment rates.

Staples said its sales had fallen 5.5 percent to $5.50 billion in the second quarter ended on July 28, well below the analysts' average estimate of $5.72 billion.

International sales dropped 18 percent to $1.1 billion, hurt by weakness in Europe, which is reeling from an economic crisis, and lackluster demand in Australia.

Staples' news came after Office Depot Inc , the No. 2 US office supply chain, reported a wider-than-expected quarterly loss last week on tepid demand in Europe and the United States. Third-ranked OfficeMax Inc has said it expects its third-quarter sales to be flat or just slightly higher than a year earlier.

Sales at these chains have suffered as corporate customers and other shoppers cut back on discretionary spending amid uncertainty in the global economy. As a result, the companies have had to rely on cost cuts to boost earnings in recent quarters.

Staples' net income fell to $120.4 million, or 18 cents a share in the second quarter, from $176.4 million, or 25 cents a share, a year earlier. Analysts on average were expecting a profit of 22 cents a share, according to Thomson Reuters.

Staples now said it expected full-year earnings per share to rise at a low single-digit percentage rate from last year's $1.37.

Sales at stores open at least a year fell 2 percent in North America, as customer traffic fell and average order size was flat. Sales of computers and core office supplies were particularly weak, Chief Executive Officer Ron Sargent said.

Shares of Staples were down 12.3 percent at $11.80 in trading before the market opened.