Adjusted diluted earnings per share of $0.22 for the second quarter of 2011 increased 10 percent compared to adjusted diluted earnings per share of $0.20 achieved in the second quarter of 2010. These adjusted results exclude a $21 million cash tax refund during the second quarter of 2011 and pre-tax integration and restructuring expense of $22 million during the second quarter of 2010.
On a GAAP basis, second quarter 2011 operating income rate decreased 7 basis points to 4.78 percent compared to the second quarter of 2010. Excluding the impact of integration and restructuring expense in the prior year period, second quarter 2011 operating income rate decreased 46 basis points to 4.78 percent. This decrease primarily reflects investments in labor and marketing in North America to support growth initiatives, partially offset by improved product margins in North America and reduced overhead in the European Office Products business.
The company’s effective tax rate for the second quarter of 2011 was 25.7 percent, compared to 37.5 percent for the second quarter of 2010. The decrease in the effective tax rate was due to the collection of tax receivables in the International business during the second quarter of 2011, as well as the renewal of tax provisions during the fourth quarter of 2010 that allow for the deferral of income tax on certain foreign earnings. The tax receivables collected in the second quarter of 2011 were related to the Corporate Express business in Europe.
The company generated operating cash flow of $302 million and invested $164 million in capital expenditures year to date, resulting in free cash flow of $138 million for the first half of 2011. At the end of the second quarter, the company had $1.8 billion in liquidity, including $823 million in cash and cash equivalents.
The company repurchased 12 million shares of its stock for $199 million during the second quarter and has repurchased 19 million shares for $346 million year to date.
North American Delivery sales for the second quarter of 2011 were $2.4 billion, an increase of 3.1 percent compared to the second quarter of 2010. The top line benefited from double digit sales growth in facilities and breakroom supplies, strong customer acquisition, and the favorable impact of foreign exchange rates. Operating income rate decreased 33 basis points to 8.42 percent compared to the second quarter 2010. This decrease primarily reflects increased labor to support growth initiatives, higher fuel costs, and investments in website development and other information systems, partially offset by reduced marketing expenses and improvements in supply chain.
North American Retail sales for the second quarter of 2011 were $2.0 billion, an increase of 1.7 percent in U.S. dollars and 0.1 percent on a local currency basis compared to the second quarter of 2010. Second quarter 2011 comparable store sales were flat versus the second quarter of 2010, reflecting a one percent decrease in customer traffic, offset by a one percent increase in average order size. Operating income rate decreased 23 basis points to 5.03 percent compared to the second quarter of 2010. This primarily reflects higher marketing and labor expense to drive growth in Copy & Print and technology solutions, partially offset by improved product margins and reduced rent and occupancy costs. The company opened four stores and closed two stores in the U.S. and opened four stores in Canada, ending the second quarter of 2011 with 1,907 stores in North America.
International sales for the second quarter of 2011 were $1.3 billion, an increase of 15.2 percent in U.S. dollars, and a decrease of 0.1 percent on a local currency basis compared to the second quarter of 2010. Mid single-digit sales growth in the European Delivery business was offset by a five percent decrease in comparable store sales in Europe, as well as weak sales in the Printing Systems Division. Operating income rate increased 7 basis points to 1.24 percent compared to the second quarter of 2010. This increase primarily reflects strong general and administrative expense controls in Europe, offset by deleverage in supply chain and labor expense in European Delivery and Australia. The company opened one store in Germany and closed one store in China during the second quarter of 2011. The International business ended the quarter with 378 stores.
For the third quarter of 2011, the company expects sales to increase in the low single-digits compared to the same period of 2010 and expects to achieve diluted earnings per share on a U.S. GAAP basis in the range of $0.46 to $0.48. For the full year 2011, the company expects sales to increase in the low single-digits compared to 2010 and expects to achieve diluted earnings per share on a U.S. GAAP basis in the range of $1.42 to $1.48. Excluding the tax refund in the second quarter of approximately $21 million, or $0.03 per share, the company expects to achieve adjusted diluted earnings per share for the full year in the range of $1.39 to $1.45. Staples now anticipates its effective tax rate for the full year will be 34 percent, excluding the second quarter tax refund.
In 2011, the company expects to generate more than $1 billion of free cash flow after spending approximately $400 million in capital expenditures for investments in growth initiatives, systems, the integration of distribution networks in North America and Europe, remodels, and new stores.