CORRECTED – UPDATE 2-Staples profit up, but taxes bite outlook

(Corrects full-year outlook view of analysts, 14th paragraph)

* Q2 EPS ex-items 20 cents vs Street view 20 cents

* Sales flat, miss analysts’ expectations

* Lowers high end of full-year outlook on higher tax rate

* Sees modest economic recovery in second half
(Rewrites first sentence, adds details, background, changes
dateline from NEW YORK)

DETROIT, Aug 19 (BestGrowthStock) – Staples Inc (SPLS.O: ) reported a
higher quarterly profit, meeting expectations, and said it
expects a modest economic recovery during the rest of the

However, the top U.S. office products retailer trimmed the
high end of its full-year earnings outlook as expectations for
a higher tax rate outweighed the economic outlook and the
resumption of share buybacks.

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

Staples’ smaller rivals, Office Depot Inc (ODP.N: ) and
OfficeMax Inc (OMX.N: ), recently reported quarterly sales that
fell short of expectations.

While Office Depot forecast flat operating profit in the
current quarter, which includes the key back-to-school selling
season, OfficeMax forecast lower sales. [ID:nN02128614]

In its second quarter, ended July 31, Staples earned $129.8
million, or 18 cents a share, up from $92.4 million, or 13
cents a share, a year earlier.

Excluding one-time items, it earned 20 cents a share,
matching the average forecast of analysts polled by Thomson
Reuters I/B/E/S.

Sales were about flat at $5.53 billion, shy of the $5.64
billion analysts had expected.

The company said it now expects its tax rate for the third
quarter and full year to be 37.5 percent, compared with
previous guidance for 34.5 percent, resulting in a full-year
impact of about 6 cents a share.

It said it raised the tax forecast because it no longer
expects the U.S. Congress to extend allowances for the deferral
of income tax on some foreign earnings.

The company expects its tax rate to return to 34.5 percent
for 2011.

Staples said it expects full-year earnings of $1.25 to
$1.29 a share before one-time items, compared with its previous
forecast of $1.25 to $1.33.

It expects a third-quarter profit (Read more your timing to make a profit.) of 39 cents to 41 cents a
share before one-time items .

Analysts were expecting $1.33 a share for the year and 43
cents for the third quarter.

Staples said it expects sales for both periods to rise in
the low single-digit percentage range.

The company also said it resumed its share repurchase
program during the second quarter, and it expects to open 25
new stores during the second half.
(Reporting by Ben Klayman in Detroit and Dhanya Skariachan in
New York; Editing by Derek Caney and John Wallace)

CORRECTED – UPDATE 2-Staples profit up, but taxes bite outlook