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Careful cash management buoys Staples Print E-mail
Tuesday, 01 December 2009

By Matthew Quinn

Office supplies giant Staples has been using careful cash management to turn around its fortunes following its $2.6 billion acquisition of Corporate Express in July 2008.

In reporting its third quarter earnings for the three months ended October 31 on Tuesday, Staples said it generated record year to date free cash flow of $1.4 billion after $191 million in capital expenditures, compared to free cash flow of $921 million for the same period of 2008.

The company used that strong free cash flow to reduce debt by $400 million during the third quarter. It has reduced debt by approximately $1.9 billion since it acquired Corporate Express. Cash and cash equivalents reached $1 billion at the end of the quarter, up 63 percent from a year earlier.

"Thanks to careful cash management, refinancing, and debt reduction, Staples has recovered to some extent from its acquisition of Corporate Express in 2008," GimmeCredit analyst Carol Levenson wrote in a note to investors on Tuesday. She also characterized Staples earnings as having gone from "horrible to less horrible."

Staples was able to increase net income to $269 million during the quarter, up 72 percent compared to a year earlier. That was despite sales decreasing 6 percent, to $6.5 billion, during the same period.

Revenues are being dragged down by still cautious businesses, a problem that also plagued Staples second quarter earnings.

Indeed, Staples said in its earnings release that, "Strong customer acquisition was more than offset by lower spend per existing customer."

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