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Staples, Inc. Reports Record Third Quarter Sales and Earnings

Company Exceeds Third Quarter 2002 Expectations With 35 Percent; Earnings Per Share Growth And A Three Percent Increase In Overall Comparable Sales

Tuesday, November 19, 2002 7:00 am EST

Dateline:

FRAMINGHAM, Mass.

Public Company Information:

NASDAQ:
SPLS
"Staples associates delivered the best third quarter in the company's history, with both sales and earnings ahead of expectations"

FRAMINGHAM, Mass.--(BUSINESS WIRE)--Staples, Inc. (Nasdaq: SPLS) announced today the results for its third quarter ended Nov. 2, 2002. The company achieved net income of $128 million for the quarter, or $0.27 per share on a diluted basis, exceeding analyst consensus of $0.24, and a 35 percent increase over earnings per share of $0.20 reported for the third quarter of 2001.

Total company sales for the quarter grew to $3.1 billion, an increase of nine percent versus $2.8 billion reported for the same quarter of the prior year. Overall comparable sales were up three percent and retail only comparable sales increased more than one percent.

"Staples associates delivered the best third quarter in the company's history, with both sales and earnings ahead of expectations," said Ron Sargent, Staples president and CEO. "We have strong momentum from the first half of the year and a keen focus on customer service and operational excellence that is driving our record performance."

Key drivers of Staples' performance are stronger than expected top line growth, solid margin growth and continued success in improving operating margins. Staples' comprehensive profit improvement plan, called Back to Brighton, remains on track and the focal point of the company's sustained efforts to drive returns. The plan, composed of three key elements: driving profitable sales growth; improving operating margins; and enhancing asset utilization, is exceeding expectations for business improvement.

Additional highlights include:

-- North American Retail continues to build on its momentum with sequentially improving comparable sales and a 36 percent increase in business unit income for the quarter.

-- Staples' North American Delivery business continues to be the most profitable delivery business in the industry. Contract sales growth outpaces the industry and is rapidly gaining market share. It is also adding record numbers of new accounts -- 2,800 this quarter, on top of the 5,600 new contracts acquired in the first half of the year.

-- New store productivity is on the rise with sales per new store week increasing nine percent in North American Retail, up for the third straight quarter.

-- The integration of Medical Arts Press is progressing smoothly and the acquisition of the European mail order business is complete, giving the company a strategic platform to grow its delivery business in Europe.

-- Staples has now opened 68 new stores and completed 126 Dover remodels year-to-date.

"Our third quarter demonstrates more than just great earnings," added Sargent. "It's a reflection of how customers are responding to our higher service levels, and the steps we are taking to differentiate the Staples customer experience."

Based on outperforming in the third quarter, Staples expects to achieve full year earnings results $.03 higher than current analyst estimates. Staples expects to achieve earnings consistent with current analyst estimates in the fourth quarter of 2002.

About Staples

Staples, Inc. is an $11 billion retailer of office supplies, business services, furniture and technology to consumers and businesses from home-based businesses to Fortune 500 companies in the United States, Canada, the United Kingdom, France, Italy, Spain, Belgium, Germany, the Netherlands and Portugal. Headquartered outside Boston, Staples invented the office superstore concept and today is the largest operator of office superstores in the world. The company has approximately 55,000 associates serving customers through more than 1,400 office superstores, mail order catalogs, e-commerce and a contract business. More information about the company 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 successfully open new stores; our Dover format store may not be successful; our growth may continue to strain operations, which could adversely affect our business and financial results; we could encounter difficulties in integrating the new European mail order businesses and Medical Arts Press, Inc.; 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 European operations may not become profitable; our 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; and those other factors discussed in our quarterly report on Form 10-Q for the quarter ending August 3, 2002, 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 tables to follow.

STAPLES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollar Amounts in Thousands, Except Share Data)
 
  November 2,   February 2,
2002 2002
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 226,189 $ 394,824
Merchandise inventories 1,615,222 1,459,792
Receivables, net 431,866 338,581
Deferred income taxes 87,428 117,560
Prepaid expenses and other current
assets 93,225 92,070
Total current assets 2,453,930 2,402,827
 
Property and Equipment:
Land and buildings 504,274 433,569
Leasehold improvements 611,544 552,250
Equipment 890,498 820,053
Furniture and fixtures 484,832 406,565
Total property and equipment 2,491,148 2,212,437
Less accumulated depreciation and
amortization 1,060,871 853,685
Net property and equipment 1,430,277 1,358,752
 
Other Assets:
Lease acquisition costs, net of
amortization 52,658 54,557
Goodwill, net of amortization 1,135,798 223,718
Intangible assets, net of amortization 218,534 -
Other 87,012 53,181
Total other assets 1,494,002 331,456
$ 5,378,209 $ 4,093,035
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,121,668 $ 935,442
Accrued expenses and other current
liabilities 652,908 655,274
Debt maturing within one year 332,346 4,983
Total current liabilities 2,106,922 1,595,699
 
Long-Term Debt 728,486 350,225
Deferred Tax Liability 4,597 6,738
Other Long-Term Obligations 98,021 86,199
 
Stockholders' Equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized; no shares
issued - -
Common stock:
Staples, Inc. Stock, $.0006 par
value, 2,100,000,000 shares
authorized; issued 498,103,724
shares at November 2, 2002 and
491,564,105 shares at
February 2, 2002 298 295
Additional paid-in capital 1,444,652 1,364,355
Cumulative foreign currency translation
adjustments (2,388) (27,129)
Retained earnings 1,554,433 1,272,991
Less: Staples, Inc. treasury stock at
cost, 27,724,573 shares at November 2,
2002, and 27,569,880 shares at
February 2, 2002 (556,812) (556,338)
Total stockholders' equity 2,440,183 2,054,174
$ 5,378,209 $ 4,093,035

STAPLES, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Dollar Amounts in Thousands, Except Per Share Data)

 
 
(Unaudited)   (Unaudited)

13 Weeks Ended

39 Weeks Ended

November 2, N ovember 3, November 2, November 3,
2002 2001 2002 2001
 
Sales $ 3,089,725 $ 2,833,861 $ 8,260,966 $ 7,815,166
Cost of goods sold
and occupancy costs 2,286,911 2,146,724 6,200,272 5,961,692
Gross profit 802,814 687,137 2,060,694 1,853,474
 
Operating and other
expenses:
Operating and
selling 471,805 431,337 1,317,421 1,238,888
Pre-opening 2,393 3,245 6,625 12,392
General and
administrative 120,006 95,997 325,788 295,496
Amortization of
goodwill - 1,646 - 4,938
Interest and other
expense, net 5,406 6,437 10,159 23,432
Total operating
and other
expenses 599,610 538,662 1,659,993 1,575,146
 
Income before
income taxes 203,204 148,475 400,701 278,328
Income tax expense 75,186 57,163 119,259 107,156
Net income $ 128,018 $ 91,312 $ 281,442 $ 171,172
 
Net income attributed
to:
Staples, Inc. Stock $ 128,018 $ 91,312 $ 281,442 $ 91,312
Staples RD Stock - - - 79,740
Staples.com Stock - - - 120
$ 128,018 $ 91,312 $ 281,442 $ 171,172
 
Basic earnings per
common share:
Staples, Inc. Stock $ 0.27 $ 0.20 $ 0.60 $ 0.20
Staples RD Stock $ - $ - $ - $ 0.18
Staples.com Stock $ - $ - $ - $ 0.01
 
Diluted earnings per
common share:
Staples, Inc. Stock $ 0.27 $ 0.20 $ 0.60 $ 0.20
Staples RD Stock $ - $ - $ - $ 0.17
Staples.com Stock $ - $ - $ - $ 0.01
 
Number of shares used
in computing basic
earnings per common
share:
Staples, Inc. Stock 467,498 459,864 465,953 459,864
Staples RD Stock - - - 455,399
Staples.com Stock - - - 7,980
 
Number of shares used
in computing diluted
earnings per common
share:
Staples, Inc. Stock 471,712 465,508 472,125 465,508
Staples RD Stock - - - 461,379
Staples.com Stock - - - 9,819
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of CashFlows
(Dollar Amounts in Thousands)
 
  (Unaudited)

39 Weeks Ended

November 2, November 3,
2002   2001
Operating Activities:
Net income $ 281,442 $ 171,172
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 195,097 183,450
Tax benefit from worthless stock deduction (29,000) -
Deferred tax expense (benefit) 34,679 (40,864)
Other 24,790 15,193
Change in assets and liabilities, net of
companies acquired/divested using purchase
accounting:
(Increase) decrease in merchandise
inventories (96,502) 31,582
Increase in receivables (13,777) (131,378)
Decrease (increase) in prepaid expenses
and other assets 6,463 (12,060)
Increase in accounts payable, accrued
expenses and other current liabilities 94,171 53,752
Increase in other long-term obligations 3,719 5,954
219,640 105,629
Net cash provided by operating activities 501,082 276,801
 
Investing Activities:
Acquisition of property and equipment (192,442) (258,232)
Acquisition of businesses, net of cash
acquired (1,171,187) -
Proceeds from the sale of short-term
investments - 8,938
Purchase of long-term investments - (250)
Proceeds from the sale and maturity of
long-term investments - 1,654
Other 624 (515)
Net cash used in investing activities (1,363,005) (248,405)
 
Financing Activities:
Proceeds from sale of capital stock 46,138 26,347
Proceeds from borrowings 730,655 597,110
Payments on borrowings (85,785) (683,800)
Repayments under accounts receivable
securitization agreement - (86,109)
Purchase of treasury stock (474) (26,071)
Net cash provided by (used in) financing
activities 690,534 (172,523)
 
Effect of exchange rate changes on cash 2,754 (8,118)
 
Net decrease in cash and cash equivalents (168,635) (152,245)
Cash and cash equivalents at beginning of
period 394,824 263,560
Cash and cash equivalents at end of period $ 226,189 $ 111,315

STAPLES, INC. AND SUBSIDIARIES

Segment Reporting

(Dollar Amounts in Thousands)
 
  (Unaudited)   (Unaudited)

13 Weeks Ended

39 Weeks Ended

November 2,   November 3, November 2,   November 3,
2002 2001 2002 2001
 
Sales by Segment:
North American Retail $ 1,927,445 $ 1,851,660 $ 5,110,467 $ 4,985,389
North American
Delivery 910,573 777,598 2,503,276 2,243,955
European Operations 251,707 204,603 647,223 560,642
Total $ 3,089,725 $ 2,833,861 $ 8,260,966 $ 7,789,986
Divested Business - - - 25,180
Consolidated Sales $ 3,089,725 $ 2,833,861 $ 8,260,966 $ 7,815,166
 
Business Unit
Income/(Loss):
North American Retail $ 136,257 $ 100,464 $ 241,265 $ 179,318
North American
Delivery 74,714 54,710 179,593 140,055
European Operations (2,361) (262) (9,998) (16,076)
Total business unit
income $ 208,610 $ 154,912 $ 410,860 $ 303,297
Divested Business - - - (1,537)
Interest and other
expense, net (5,406) (6,437) (10,159) (23,432)
Consolidated income
before income taxes $ 203,204 $ 148,475 $ 400,701 $ 278,328

Contact:

Staples, Inc. (Media Contact)
Paul Capelli, 508/253-8530
Vice President, Public Relations
or
Staples, Inc. (Investor Contact)
Laurel Lefebvre, 508/253-4080
Director, Investor Relations

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