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Staples, Inc. Reports Second Quarter Results

Category:

Thursday, August 13, 1998 7:00 am EDT

Dateline:

WESTBOROUGH, Mass.

Public Company Information:

NASDAQ:
SPLS
"Staples has again achieved some of the best results in all of the retail industry including our seventeenth consecutive quarter of earnings per share growth of over 30%. These results are truly extraordinary given our continued substantial investments in long-term sales and earnings growth in what is our seasonally slowest quarter."

WESTBOROUGH, Mass.--(BUSINESS WIRE)--Staples, Inc. Reports Second Quarter Results WESTBOROUGH, Mass.--August 13, 1998-- Staples, Inc. (NASDAQ:SPLS), today announced a 33% increase in earnings per share before merger related charges for the second fiscal quarter ended August 1, 1998 to $0.12 per share as compared with $0.09 per share in the prior year. For the six months in the year to date period, earnings per share before merger related charges rose 26% to $0.24 per share as compared with $0.19 per share in the prior year period.

In the fiscal 1998 quarter and year to date periods, merger related charges were recorded for the acquisition of Quill Corporation. In the fiscal 1997 quarter and year to date periods, merger related charges were recorded for the attempted merger with Office Depot, Inc. Historical data has been restated to reflect the acquisition of the Quill Corporation under the pooling of interests method of accounting.

Total sales for the second quarter of fiscal 1998 rose 24% to $1.5 billion from $1.2 billion. For the six months in the year to date period, sales rose 27% to $3.1 billion from $2.5 billion in the prior year period. Comparable sales in the 669 stores and delivery hubs that have been open for more than one year increased 14% for the quarter and 13% for the six month period.

Thomas G. Stemberg, Chairman and CEO commented, "Staples has again achieved some of the best results in all of the retail industry including our seventeenth consecutive quarter of earnings per share growth of over 30%. These results are truly extraordinary given our continued substantial investments in long-term sales and earnings growth in what is our seasonally slowest quarter."

He continued, "During the second quarter we opened 48 new stores which set a new company record. In addition, we completed the acquisition of the Quill Corporation which further strengthens our mail order operations and creates exciting new opportunities both domestically and abroad."

The Company ended the quarter with 652 stores in the United States, 114 stores in Canada, 44 stores in the United Kingdom and 20 stores in Germany for a total of 830 stores worldwide.

Staples, Inc. is a $5 billion retailer of office supplies, furniture and technology to businesses from home based businesses to Fortune 50 companies in the United States, Canada, the United Kingdom and Germany. Staples, headquartered outside Boston, Mass., invented the office superstore concept and is the largest operator of office superstores in the world today. The Company, which has grown earnings per share at a 38% compounded rate over the last four years, has over 32,000 employees serving the business customer through 830 office superstores, mail order catalogs and a contract business.

More information may be obtained from the Company's Investor Relations department by dialing (800) INV-SPL1 or from the Company's website at http://www.staples.com.

Certain information presented within this press release may constitute forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, which are discussed in the Company's most recent filing on Forms 10-K and 10-Q on file with the Securities and Exchange Commission.

                    STAPLES, INC. AND SUBSIDIARIES
            Supplemental Consolidated Statements of Income
           (Dollar Amounts in Thousands, Except Share Data)

                             (Unaudited)            (Unaudited)
                             13 Weeks Ended        26 Weeks Ended
                         August 1,   August 2,   August 1,   August 2,
                           1998        1997        1998        1997

Sales                   $1,475,705  $1,192,339  $3,146,316  $2,485,060
Cost of goods sold and
 occupancy costs         1,120,780     905,718   2,403,376   1,893,773
   Gross profit            354,925     286,621     742,940     591,287

Operating and other
  expenses:
 Operating and selling     213,969     181,264     469,617     379,862
 Pre-opening                 4,232       2,316       7,584       5,178
 General and
  administrative            70,694      55,174     138,180     102,205
 Amortization of
  goodwill                     927       1,049       1,851       1,621
 Merger-related and
  integration costs         41,000       9,103      41,000      29,665
 Interest and other
  expense, net               5,920       5,892      10,614       9,828
   Total operating and
    other expenses         336,742     254,798     668,846     528,359

   Income before equity
    in loss of affiliates
    and income taxes        18,183      31,823      74,094      62,928
 Equity in gain/(loss)
  of affiliates               --          --          --        (5,953)

   Income before income
    taxes                   18,183      31,823      74,094      56,975
 Income tax expense          9,319       9,120      29,330      14,495
   Net income before
    minority interest        8,864      22,703      44,764      42,480
  Minority interest            110          56         160          56
   Net income               $8,974     $22,759     $44,924     $42,536


 Historical net income
  per common share           $0.03       $0.08       $0.16       $0.16

 Historical net income
  per common share
  assuming dilution          $0.03       $0.08       $0.16       $0.15

 Pro forma:
  Historical net income                $22,759     $44,924     $42,536
  Provision for income
   taxes on previously
   untaxed earnings of
   pooled S-Corporation
   income                                3,182       1,814       7,730
  Pro forma net income                 $19,577     $43,110     $34,806


   Pro forma net income
    per common share                     $0.07       $0.15       $0.13

Pro forma net income per
 common share assuming
 dilution                                $0.07       $0.15       $0.13

Number of shares used
 in computing historical
 and pro forma net
 income per
 common share        282,639,460  270,155,123  282,639,460  269,600,845

Number of shares used
 in computing historical
 and pro forma net
 income per common
 share assuming
 dilution            291,033,327  279,191,526  289,161,513  278,271,092

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

                                             August 1,    January 31,
                                                1998          1998
                                            (Unaudited)
ASSETS Current Assets: Cash and cash equivalents $ 93,762 $ 381,088 Short-term investments 1,443 5,902 Merchandise inventories 1,293,654 1,124,642 Receivables, net 254,641 203,143 Prepaid expenses and other current assets 80,825 71,365 Total current assets 1,724,325 1,786,140 Property and Equipment: Land and buildings 195,378 150,947 Leasehold improvements 327,476 292,128 Equipment 334,041 304,177 Furniture and fixtures 197,821 173,711 Total property and equipment 1,054,716 920,963 Less accumulated depreciation and amortization 352,915 310,701 Net property and equipment 701,801 610,262 Other Assets: Lease acquisition costs, net of amortization 77,695 43,244 Investments -- 16,450 Goodwill, net of amortization 135,818 139,753 Other 35,229 43,013 Total other assets 248,742 242,460 $ 2,674,868 $ 2,638,862 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 701,198 $ 672,956 Accrued expenses and other current liabilities 310,523 266,023 Debt maturing within one year 4,443 43,501 Total current liabilities 1,016,164 982,480 Long-Term Debt 205,935 218,959 Other Long-Term Obligations 48,708 42,803 Convertible Debentures 300,000 300,000 Minority Interest (25) 135 Stockholders' Equity: Preferred stock, $.01 par value-authorized 5,000,000 shares; no shares issued Common stock, $.0006 par value-authorized 500,000,000 shares; issued 284,483,644 shares at August 1, 1998 and 278,159,308 shares at January 31, 1998 170 167 Additional paid-in capital 631,967 593,883 Cumulative foreign currency translation adjustments (12,792) (10,315) Unrealized gain/(loss) on short-term investments 2 1,056 Retained earnings 492,977 510,040 Less: treasury stock, at cost, 352,948 shares at August 1, 1998 and 59,149 shares at January 31, 1998 (8,238) (346) Total stockholders' equity 1,104,086 1,094,485 $ 2,674,868 $ 2,638,862

                    STAPLES, INC. AND SUBSIDIARIES
          Supplemental Consolidated Statements of Cash Flows
                     (Dollar Amounts in Thousands)

                                                    (Unaudited)
                                                   26 Weeks Ended
                                                August 1,   August 2,
                                                  1998        1997
Operating Activities:
  Net income                                  $  44,924    $  42,536
  Adjustments to reconcile net income
   to net cash provided by/(used in)
   operating activities:
    Minority interest                              (160)         (56)
    Depreciation and amortization                45,725       45,943
    Equity in loss of affiliates                   --          5,953
    Net decrease in deferred tax assets          (7,098)     (10,665)
    (Increase)/decrease in assets:
      Merchandise inventories                  (169,012)    (134,318)
      Receivables                               (56,419)      (2,655)
      Prepaid expenses and other assets           8,616       (5,390)
    Increase in accounts payable, accrued
     expenses and other current liabilities      78,706      128,442
    Increase in other long-term obligations       6,242        3,234
                                                (93,400)      30,488
  Net cash (used in)/provided by
   operating activities                         (48,476)      73,024

Investing Activities:
  Acquisition of property and equipment        (136,713)     (78,820)
  Proceeds from sales and maturities of
   short-term investments                        11,313       10,061
  Purchase of short-term investments             (6,854)        --
  Proceeds from sales and maturities of
   long-term investments                         18,995        3,430
  Purchase of long-term investments              (2,545)      (3,505)
  Acquisition of businesses, net of
   cash acquired                                    --       (77,808)
  Investment in affiliates                       (1,075)      (1,606)
  Acquisition of lease rights                   (36,690)      (2,402)
  Other                                            (544)       2,059
  Net cash used in investing activities        (154,113)    (148,591)

Financing Activities:
  Proceeds from sale of capital stock            38,654       11,500
  Proceeds from borrowings                           38      762,914
  Payments on borrowings                        (52,082)    (677,375)
  Purchase and retirement of
   S-Corporation stock                          (48,102)        --
  Dividends to shareholders of acquired
   S-Corporation                                (15,601)     (14,257)
  Other                                          (7,892)        --
  Net cash (used in)/provided by
   financing activities                         (84,985)      82,782

  Effect of exchange rate changes on cash           248         (727)

Net (decrease)/increase in cash and
 cash equivalents                              (287,326)       6,488
Cash and cash equivalents at beginning
 of period                                      381,088      117,035
Cash and cash equivalents at end of period    $  93,762    $ 123,523

Contact:

Media:
Jean Papagni
Manager of Public Relations
508-370-8468
jean.papagni@staples.com
or
Investor:
Samuel J. Levenson, CPA
Vice President of Investor Relations
508-370-7963
sam.levenson@staples.com

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