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Staples, Inc. Reports Record Third Quarter Performance; Company Sales Increased 11 Percent; Earnings Per Share Rose 14 Percent; North American Retail Comparable Sales Increased Three Percent

Tuesday, November 15, 2005 7:00 am EST

Dateline:

FRAMINGHAM, Mass.

Public Company Information:

NASDAQ:
SPLS
"Our commitment to make it easy for our customers continues to fuel market share gains."

FRAMINGHAM, Mass.--(BUSINESS WIRE)--Staples, Inc. (Nasdaq: SPLS) announced today the results for its third quarter ended October 29, 2005. Total company sales grew to $4.25 billion, an increase of 11 percent versus $3.83 billion for the same quarter of the prior year. Net income rose 14 percent year-over-year to $238 million, and earnings per share, on a diluted basis, increased 14 percent to $0.32, from the $0.28 achieved in the third quarter of 2004.

"Our associates once again drove industry leading sales and profits," said Ron Sargent, Staples' chairman and chief executive officer. "Our commitment to make it easy for our customers continues to fuel market share gains."

Highlights for the third quarter include:
 
-- North American Retail sales were $2.45 billion, up nine
percent. Same store comparable sales increased three percent
year-over-year, with strong performance in copy center,
networking, digital cameras and accessories, portable
computers, and peripherals.
 
-- North American Delivery increased revenues by 18 percent to
$1.29 billion.
 
-- Sales in the company's International business rose four
percent, or five percent in local currency, but declined two
percent excluding benefits from acquisitions and the negative
impact of foreign currency exchange.
 
-- Total company operating income increased 16 basis points to
8.8 percent of sales, with North American Retail and North
American Delivery both achieving record third quarter
performance with operating income rising to 10 percent of
sales.
 
-- Inventory turns increased 17 basis points to 5.66 times.
 
-- Staples opened 18 new stores in the US and 11 stores in
Canada. In Europe, Staples added a total of three new stores
with one opening in the UK, the Netherlands and Portugal. The
company now operates 1,748 stores worldwide.
 
-- The company generated $465 million in free cash flow during
the first three quarters of the year.

Outlook

For the fourth quarter of 2005, Staples expects to achieve earnings per share growth in line with average analyst estimates. Staples expects to achieve approximately 10 percent sales growth for the total company. For North American Retail, the company expects a low single digit comparable sales increase. In the North American Delivery business, the company expects sales growth in the mid teens, and for the International business, Staples expects flat sales performance.

Looking ahead to 2006, Staples expects revenues to grow in the low double digits, and expects to achieve earnings per share growth in the range of 15 to 20 percent, including a 53rd week in fiscal 2006 and the adjustment for stock option expense in 2005 and 2006. The company will expense stock options beginning in the first quarter of 2006, and restate earnings for 2005 to reflect the impact of stock option expense, which is expected to reduce 2005 earnings per share by $0.06 to $0.07, on a diluted basis. Stock option expense is expected to impact earnings per share by $0.07 to $0.08, on a diluted basis, in 2006. As a result of expensing stock options, earnings per share for 2006 are expected to be in the range of $1.20 to $1.26, on a diluted basis.

About Staples

Staples, Inc. invented the office superstore concept in 1986 and today is the world's largest office products company. With 65,000 talented associates, the company is committed to making it easy to buy a wide range of office products, including supplies, technology, furniture, and business services. With 2004 sales of $14.4 billion, Staples serves consumers and businesses ranging from home-based businesses to Fortune 500 companies in 21 countries throughout North and South America, Europe and Asia. Headquartered outside of Boston, Staples operates approximately 1,750 office superstores and also serves its customers through mail order catalog, e-commerce and contract businesses. More information is available at 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 including, but not limited to, the information set forth under the heading "Outlook" and other statements regarding our future business and financial performance. 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 and enter new markets successfully; our growth may continue to strain operations, which could adversely affect our business and financial results; our operating results may be impacted by changes in the economy; our stock price may fluctuate based on market expectations; 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 expanding international operations expose us to the unique risks inherent in foreign operations; our debt level and operating lease commitments could impact our ability to obtain future financing and continue our growth strategy; 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 October 29, 2005, and any subsequent periodic reports filed by us with the SEC. 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)

 
 
  October 29,  
2005 January 29,
(Unaudited) 2005
ASSETS
Current assets:
Cash and cash equivalents $ 770,270 $ 997,310
Short-term investments 558,858 472,231
Receivables, net 568,430 485,126
Merchandise inventories, net 1,708,701 1,602,530
Deferred income tax asset 115,153 86,041
Prepaid expenses and other current assets 132,994 138,374
Total current assets 3,854,406 3,781,612
 
Property and equipment:
Land and buildings 684,987 649,175
Leasehold improvements 842,310 762,946
Equipment 1,250,050 1,140,234
Furniture and fixtures 646,360 597,293
Total property and equipment 3,423,707 3,149,648
Less accumulated depreciation and
amortization 1,762,144 1,548,774
Net property and equipment 1,661,563 1,600,874
 
Lease acquisition costs, net of accumulated
amortization 35,838 38,400
Intangible assets, net of accumulated
amortization 232,263 222,520
Goodwill 1,383,424 1,321,464
Other assets 89,129 106,578
Total assets $ 7,256,623 $ 7,071,448
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,365,968 $ 1,241,433
Accrued expenses and other current
liabilities 947,223 954,184
Debt maturing within one year 1,352 1,244
Total current liabilities 2,314,543 2,196,861
 
Long-term debt 526,455 557,927
Deferred income tax liability 22,616 23,314
Other long-term obligations 223,636 178,150
 
Minority interest 4,288 -
 
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized; no shares issued - -
Common stock, $.0006 par value,
2,100,000,000 shares authorized; issued
823,548,329 shares at October 29, 2005 and
813,049,136 shares at January 29, 2005 494 488
Additional paid-in capital 2,426,414 2,254,947
Cumulative foreign currency translation
adjustments 76,039 114,427
Retained earnings 3,239,188 2,818,163
Less: Treasury stock at cost - 92,315,397
shares at October 29, 2005, and 68,547,587
shares at January 29, 2005 (1,577,050) (1,072,829)
Total stockholders' equity 4,165,085 4,115,196
Total liabilities, minority interest and
stockholders' equity $ 7,256,623 $ 7,071,448
STAPLES, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Dollar Amounts in Thousands, Except Per Share Data)
(Unaudited)
 
  13 Weeks Ended   39 Weeks Ended
October 29,   October 30, October 29,   October 30,
2005 2004 2005 2004
 
Sales $ 4,245,519 $ 3,830,466 $ 11,616,535 $ 10,371,873
Cost of goods sold
and occupancy
costs 3,024,061 2,734,250 8,342,472 7,469,347
Gross profit 1,221,458 1,096,216 3,274,063 2,902,526
 
Operating and other
expenses:
Operating and
selling 687,494 608,426 1,934,128 1,729,657
General and
administrative 156,262 153,748 471,831 436,734
Amortization of
intangibles 3,178 2,297 10,021 6,147
Total operating
expenses 846,934 764,471 2,415,980 2,172,538
 
Operating income 374,524 331,745 858,083 729,988
 
Other income
(expense):
Interest income 15,928 8,811 40,719 19,206
Interest expense (14,916) (10,777) (39,955) (27,977)
Miscellaneous
expense (927) (856) (1,086) (1,431)
Income before
income taxes
and minority
interest 374,609 328,923 857,761 719,786
Income tax expense 136,732 120,057 313,083 262,722
Income before
minority
interest 237,877 208,866 544,678 457,064
Minority interest 53 - 251 -
Net income $ 237,824 $ 208,866 $ 544,427 $ 457,064
 
 
Earnings Per Share:
 
Basic earnings
per common
share $ 0.33 $ 0.28 $ 0.74 $ 0.62
 
Diluted
earnings per
common share $ 0.32 $ 0.28 $ 0.73 $ 0.60
 
Dividends declared
per common share $ - $ - $ 0.17 $ 0.13
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
(Unaudited)
 
  39 Weeks Ended
October 29,   October 30,
2005 2004
Operating Activities:
Net income $ 544,427 $ 457,064
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 223,429 206,381
Deferred tax (expense) benefit (24,738) 4,841
Other 40,600 39,437
Changes in assets and liabilities:
Increase in receivables (73,434) (49,656)
Increase in merchandise inventories (106,333) (103,004)
Increase in prepaid expenses and other
assets (5,323) (9,876)
Increase in accounts payable 120,804 242,056
Increase in accrued expenses and other
liabilities 18,381 39,282
Increase in other long-term obligations 16,082 5,087
Net cash provided by operating activities 753,895 831,612
 
Investing Activities:
Acquisition of property and equipment (289,338) (200,662)
Acquisition of businesses, net of cash
acquired (40,560) (86,390)
Increase in investment, net of cash acquired (16,636) (9,650)
Purchase of short-term investments (6,037,124) (8,263,263)
Proceeds from the sale of short-term
investments 5,950,498 8,668,722
Net cash (used in) provided by investing
activities (433,160) 108,757
 
Financing Activities:
Proceeds from the exercise of stock options
and the sale of stock under employee stock
purchase plans 102,929 148,031
Payments on borrowings (18,850) (3,216)
Cash dividends paid (123,402) (99,527)
Purchase of treasury stock, net (504,221) (344,711)
Net cash used in financing activities (543,544) (299,423)
 
Effect of exchange rate changes on cash and
cash equivalents (4,231) 15,081
 
Net (decrease) increase in cash and cash
equivalents (227,040) 656,027
Cash and cash equivalents at beginning of
period 997,310 457,465
Cash and cash equivalents at end of period $ 770,270 $ 1,113,492
STAPLES, INC. AND SUBSIDIARIES
Segment Reporting
(Dollar Amounts in Thousands)
 
 
  (Unaudited)  

(Unaudited)

13 Weeks Ended

39 Weeks Ended

October 29,   October 30, October 29,   October 30,
  2005   2004   2005   2004
 
Sales:
North American
Retail $ 2,450,926 $ 2,254,749 $ 6,468,839 $ 5,937,640
North American
Delivery 1,285,905 1,086,820 3,617,436 3,074,274
International
Operations 508,688 488,897 1,530,260 1,359,959
Total sales $ 4,245,519 $ 3,830,466 $ 11,616,535 $ 10,371,873
 
Business Unit
Income:
North American
Retail $ 245,265 $ 220,883 $ 527,975 $ 423,205
North American
Delivery 128,669 99,270 338,627 260,656
International
Operations 590 11,592 (8,519) 46,127
Total business
unit income $ 374,524 $ 331,745 $ 858,083 $ 729,988
Interest and other
expense, net 85 (2,822) (322) (10,202)
Income before
income taxes $ 374,609 $ 328,923 $ 857,761 $ 719,786

Contact:

Staples, Inc.
Media Contact:
Paul Capelli/Deborah Hohler, 508-253-8530/8509
or
Investor Contact:
Laurel Lefebvre/Katie Sullivan, 508-253-4080/0879

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