Win32 Virus Removal

By Andria Cheng, MarketWatch

NEW YORK (MarketWatch) — Easing some investor concerns about the downbeat office-supplies sector, Staples Inc. reported Wednesday that second-quarter profit rose a better-than-expected 36%, helped by stronger sales to North American business customers and a lower tax rate.

The Framingham, Mass.-based company /quotes/zigman/78299/quotes/nls/spls SPLS -0.56% , which ranks as No. 1 U.S. office-products retailer, also raised the low end of its full-year profit forecast.

Demand has been driven by sales of facilities and break-room supplies such as coffee and snacks to business customers. It also has been driven by the company’s Copy & Print and tech services including PC tuneups and virus removal. At its stores, customers were buying things such as Amazon.com’s /quotes/zigman/63011/quotes/nls/amzn AMZN -1.30%  Kindle eReader or Barnes & Noble Inc.’s /quotes/zigman/132169/quotes/nls/bks BKS -9.16%  Nook.

To diversify beyond sales of traditional office supplies tied closely to the employment trends, the company’s rolling out mobile phones and services from AT&T, Verizon Wireless and T-Mobile as well.

The company also said back-to-school sales have gotten off to a good start. While the industry remains price-competitive, it said it was able to successfully pass through most cost increases in the second quarter that it was slow to pass on in the first quarter. See retailers waging back-to-school price war.

The company’s results “should provide sharp relief to investors,” said Sanford C. Bernstein & Co. analyst Colin McGranahan. He added that the company had missed its own expectations in the preceding two quarters.

“While overall macro trends clearly remain sluggish, the company cited solid trends in its core business and continued momentum in its growth initiatives. We expect [the results] to provide investors with much greater confidence in the company’s ability to manage its business in the current environment,” McGranahan wrote.

Investors have been negative on the sector because its performance is closely tied to the broader economic growth, analysts say.

Employment trends remain key

“We remain cautious ... in light of a challenging environment,” said Citigroup analyst Kate McShane. Upside for the share price is unlikely barring “material improvement in white-collar employment.”

Indeed, Staples said second-quarter sales were driven by new customer acquisition as sales to existing customers remain soft. Demand from the federal and state governments remains weak, Chief Executive Ron Sargent said on a conference call.

Staples’ shares fell 1% to $14.09 with the broader markets, erasing their earlier gains. Through Tuesday, the stock had lost 38% of its value this year.

Shares of smaller rival Office Depot Inc. /quotes/zigman/236952/quotes/nls/odp ODP -1.49% , which had slumped 50% this year, dropped 2.6% to $2.62. UBS raised its rating to neutral from sell.

Shares of OfficeMax Inc. /quotes/zigman/359604/quotes/nls/omx OMX +1.67% , which had tumbled 66%, dipped 0.3% to $6.06.

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