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Staples, Inc. Reports Best Third Quarter In Company History 13 Percent Sales Growth Drives 29 Percent Increase in Earnings

Company Posts a Four Percent Increase in North American Retail Comparable Sales

Tuesday, November 18, 2003 7:00 am EST

Dateline:

FRAMINGHAM, Mass.

Public Company Information:

NASDAQ:
SPLS
"Thanks to the hard work and talent of our 58,000 associates who strive each day to make buying office products easy for our customers, we achieved excellent results across all areas of our business"

FRAMINGHAM, Mass.--(BUSINESS WIRE)--Staples, Inc. (Nasdaq: SPLS) announced today the results for its third quarter ended November 1, 2003. The company achieved a 29 percent increase in net income to $166 million for the quarter, or $0.33 per share on a diluted basis. This exceeds analyst consensus of $0.32, and is a 22 percent increase over earnings per share of $0.27 reported for the third quarter of 2002.

The company reported industry leading revenue growth, with total company sales for the quarter reaching $3.5 billion, an increase of 13 percent versus $3.1 billion reported for the same quarter in the prior year. North American Retail comparable sales increased four percent, with strong performance in furniture, business machines and services, and a healthy back to school season. North American Delivery sales grew seven percent, maintaining strong momentum.

"With eight quarters of more than 20 percent earnings growth and solid improvement in our performance across the board, we continue to execute well against a great market opportunity," said Ron Sargent, Staples' president and chief executive officer.

Third quarter highlights include:

  • The company generated $424 million in free cash flow year to date.
  • Total company operating margins were 7.66 percent, reaching an all-time high for the third quarter.
  • North American Retail achieved record profitability for the third quarter, benefiting from an improved product mix, more efficient marketing and good expense control.
  • North American Delivery improved its profitability by 16 percent.
  • Sales for European Operations increased 56 percent with both retail and delivery profitable for the quarter.

"Thanks to the hard work and talent of our 58,000 associates who strive each day to make buying office products easy for our customers, we achieved excellent results across all areas of our business," said Sargent.

Outlook

For the fourth quarter ending January 31, 2004, the company remains comfortable with current analyst consensus expectations for earnings per share of $0.41. Looking ahead to 2004, Staples anticipates low double-digit sales growth and earnings per share growth to reach 20 percent. North American comparable sales are expected to be in the low single-digit range.

About Staples

Staples, Inc. is headquartered outside of Boston and sells a wide range of office products, including supplies, technology, furniture, and business services. With 2002 sales of $11.6 billion, Staples is committed to make buying office products easy. Nearly 58,000 associates serve consumers and businesses of all sizes -- from home-based businesses to Fortune 500 companies in the US, Belgium, Canada, France, Germany, Italy, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom. Staples invented the office superstore concept and today, with approximately 1,500 office superstores, is the largest operator of office superstores in the world. Staples also serves its customers through its mail order catalog, e-commerce and contract businesses. More information is available at http://www.staples.com.

Certain information contained in this news release constitutes forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of risks and uncertainties, including but not limited to: our market is highly competitive and we may not continue to compete successfully; we may be unable to continue to open new stores successfully; our growth may continue to strain operations, which could adversely affect our business and financial results; our quarterly operating results are subject to significant fluctuation and are impacted by the extent to which sales in new stores result in the loss of sales in existing stores, the mix of products sold, pricing actions of competitors, the level of advertising and promotional expenses and seasonality; our operating results may be impacted by changes in the economy; our stock price may fluctuate based on market expectations; our expanding international operations expose us to the unique risks inherent in foreign operations; our debt level could impact our ability to obtain future financing and continue our growth strategy; the SEC review of certain accounting practices of major New England retailers; a California wage and hour class action lawsuit; and those other factors discussed in our quarterly report on Form 10-Q for the quarter ended August 2, 2003, which is on file with the Securities and Exchange Commission, and any subsequent periodic reports filed by us with the Securities and Exchange Commission. In addition, any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.

Financial information follows.

 
 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar Amounts in Thousands, Except Share Data)
 
 
November 1,
2003

February 1,

 

(Unaudited)

2003
ASSETS
Current assets:
Cash and cash equivalents $ 1,048,571 $ 596,064
Receivables, net 408,862 364,419
Merchandise inventories, net 1,619,294 1,555,205
Deferred income taxes 133,197 96,229
Prepaid expenses and other current assets 103,619 105,559
Total current assets 3,313,543 2,717,476
 
Property and equipment:
Land and buildings 583,265 524,730
Leasehold improvements 670,039 621,713
Equipment 1,015,070 951,439
Furniture and fixtures 512,290 472,935
Total property and equipment 2,780,664 2,570,817
Less accumulated depreciation and amortization 1,304,468 1,123,065
Net property and equipment 1,476,196 1,447,752
 
Lease acquisition costs, net of accumulated
amortization 44,818 51,450
Intangible assets, net of accumulated
amortization 211,478 216,391
Goodwill 1,209,785 1,207,824
Other assets 69,074 80,495
 
Total assets $ 6,324,894 $ 5,721,388
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,276,506 $ 1,092,172
Accrued expenses and other current
liabilities 762,008 755,483
Debt maturing within one year 3,608 327,671
Total current liabilities 2,042,122 2,175,326
 
Long-term debt 735,165 732,041
Deferred income taxes 27,700 50,267
Other long-term obligations 133,606 104,862
 
Stockholders' equity:
Preferred stock - authorized 5,000,000 shares
of $.01 par value; no shares issued - -
Common stock - authorized 2,100,000,000
shares of $.0006 par value; issued 523,043,511
shares at November 1, 2003 and 500,831,408
shares at February 1, 2003 314 299
Additional paid-in capital 1,886,994 1,484,833
Cumulative foreign currency translation
adjustments 62,678 11,481
Retained earnings 1,997,414 1,719,091
Treasury stock at cost - 27,927,201 shares at
November 1, 2003, and 27,724,578 shares at
February 1, 2003 (561,099 ) (556,812 )
 
Total stockholders' equity 3,386,301 2,658,892
 
Total liabilities and stockholders' equity $ 6,324,894 $ 5,721,388
               
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of Income

(Amounts in Thousands, Except Per Share Data)

(Unaudited)
 
 

13 Weeks Ended

39 Weeks Ended

November 1,

November 2,

November 1,

November 2,

2003 2002 2003 2002
 
Sales $ 3,484,784 $ 3,089,725 $ 9,500,068 $ 8,260,966
Cost of goods sold and occupancy costs 2,497,117 2,286,911 6,982,528 6,200,272
 
Gross profit 987,667 802,814 2,517,540 2,060,694
 

Operating and other expenses:

Operating and selling 585,867 471,805 1,665,867 1,317,421
Pre-opening 2,314 2,393 5,961 6,625
General and administrative 130,422 120,006 382,289 325,788
Amortization of intangibles 2,076 - 5,962 -
Interest and other expense, net 3,854 5,406 15,679 10,159
 
Total operating and other expenses 724,533 599,610 2,075,758 1,659,993
 
 
Income before income taxes 263,134 203,204 441,782 400,701
Income tax expense 97,360 75,186 163,459 119,259
 
Net income $ 165,774 $ 128,018 $ 278,323 $ 281,442
 
 
Basic earnings per common share: $ 0.34 $ 0.27 $ 0.58 $ 0.60
 
Diluted earnings per common share: $ 0.33 $ 0.27 $ 0.57 $ 0.60
 
 
Number of shares used in computing
basic earnings per common share: 491,049 467,498 480,642 465,953
 
 
Number of shares used in computing
diluted earnings per common share: 502,031 471,712 489,180 472,125
   
 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
(Unaudited)
 

39 Weeks Ended

November 1,

November 2,

2003 2002
Operating Activities:
Net income $ 278,323 $ 281,442
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 212,749 195,097
Deferred tax (benefit) expense (36,597 ) 34,679
Other 25,662 24,790
Changes in assets and liabilities:
Increase in receivables (34,192 ) (13,777 )
Increase in merchandise inventories (17,248 ) (96,502 )
Decrease in prepaid expenses and other
assets 219 6,463
Increase in accounts payable 147,921 96,532
Increase (decrease) in accrued expenses
and other liabilities 30,141 (31,361 )
Increase in other long-term obligations 7,944 3,719
 
Net cash provided by operating activities 614,922 501,082
 
Investing Activities:
Acquisition of property and equipment (190,809 ) (192,442 )
Acquisition of businesses, net of cash
acquired (2,910 ) (1,171,187 )
Other - 624
 
Net cash used in investing activities (193,719 ) (1,363,005 )
 
Financing Activities:
Proceeds from sale of capital stock 357,736 46,138
Proceeds from borrowings - 730,655
Payments on borrowings (336,826 ) (85,785 )
Purchase of treasury stock (4,287 ) (474 )
 
Net cash provided by financing activities 16,623 690,534
 
Effect of exchange rate changes on cash and
cash equivalents 14,681 2,754
 
Net increase (decrease) in cash and cash
equivalents 452,507 (168,635 )
Cash and cash equivalents at beginning of
period 596,064 394,824
 
Cash and cash equivalents at end of period $ 1,048,571 $ 226,189
 
STAPLES, INC. AND SUBSIDIARIES
Segment Reporting
(Dollar Amounts in Thousands)
(Unaudited)
 
 
    13 Weeks Ended   39 Weeks Ended

November 1,

 

November 2,

November 1,

 

November 2,

2003 2002 2003 2002
Sales:
North American Retail $ 2,120,176 $ 1,927,445 $ 5,581,548 $ 5,110,467
North American Delivery 971,277 910,573 2,783,844 2,503,276
European Operations 393,331 251,707 1,134,676 647,223
 
Total sales $ 3,484,784 $ 3,089,725 $ 9,500,068 $ 8,260,966
 
 
Business Unit Income/(Loss):
North American Retail $ 160,732 $ 136,257 $ 303,304 $ 241,265
North American Delivery 86,595 74,714 217,999 179,593
European Operations 19,661 (2,361 ) 34,133 (9,998 )
 
Total business unit income $ 266,988 $ 208,610 $ 555,436 $ 410,860
Interest and other expense, net (3,854 ) (5,406 ) (15,679 ) (10,159 )
Impact of change in accounting principle - - (97,975 ) -
 
Income before income taxes $ 263,134 $ 203,204 $ 441,782 $ 400,701
 
STAPLES, INC. AND SUBSIDIARIES
Pro Forma Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
 
  Pro Forma for the       Pro Forma for the
13 Weeks Ended 39 WeeksEnded

November 1,

     

November 2,

November 1,

     

November 2,

 

2003 2002 2003 2002
 
Sales $ 3,484,784 $ 3,089,725 $ 9,500,068 $ 8,260,966
Cost of goods sold and occupancy costs 2,497,117 2,221,639 6,884,553 6,027,331
Gross profit 987,667 868,086 2,615,515 2,233,635
 
Operating and other expenses:
Operating and selling 585,867 537,077 1,665,867 1,490,362
Pre-opening 2,314 2,393 5,961 6,625
General and administrative 130,422 120,006 382,289 325,788
Amortization of intangibles 2,076 - 5,962 -
Interest and other expense, net 3,854 5,406 15,679 10,159
Total operating and other expenses 724,533 664,882 2,075,758 1,832,934
 
Income before income taxes 263,134 203,204 539,757 400,701
Income tax expense 97,360 75,186 199,710 119,259
Net income $ 165,774 $ 128,018 $ 340,047 $ 281,442
 
 
Basic earnings per common share: $ 0.34 $ 0.27 $ 0.71 $ 0.60
 
Diluted earnings per common share: $ 0.33 $ 0.27 $ 0.70 $ 0.60
 
Number of shares used in computing
basic earnings per common share: 491,049 467,498 480,642 465,953
 
Number of shares used in computing
diluted earnings per common share: 502,031 471,712 489,180 472,125

Contact:

Media Contact:
Staples, Inc.
Paul Capelli/Deb Hohler, 508-253-8530/8509
or
Investor Contact:
Laurel Lefebvre/Katy Nash, 508-253-4080/7342

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