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Staples, Inc. Reports Best Year for Sales and Earnings in Company's History

Company Reports Three Percent Increase in Retail Comparable Sales for the Quarter and 33 Percent Earnings Per Share Growth in 2002

Wednesday, March 5, 2003 7:00 am EST

Dateline:

FRAMINGHAM, Mass.

Public Company Information:

NASDAQ:
SPLS
"The outstanding performance by Staples associates drove record results and advanced our ability to truly make buying office products easy. We now look to build on our momentum, capitalize on the investments we made this past year, and deliver sustainable results going forward."

FRAMINGHAM, Mass.--(BUSINESS WIRE)--Staples, Inc. (Nasdaq: SPLS) announced today the results for the fourth quarter and full year ended Feb. 1, 2003. The company achieved a record performance with net income excluding special items of $417 million for the full year, or $0.88 per share, on a diluted basis. Earnings per share grew 33 percent from 2001, excluding special items, or a 65 percent increase on a GAAP basis, despite a difficult business environment. Sales for the year reached $11.6 billion, an eight percent increase compared to 2001, with increasing momentum and profitability gains throughout the year.

"Staples had a phenomenal year that reflects the power of people unified behind a winning strategy," said Ron Sargent, Staples president and CEO. "The outstanding performance by Staples associates drove record results and advanced our ability to truly make buying office products easy. We now look to build on our momentum, capitalize on the investments we made this past year, and deliver sustainable results going forward."

Total company sales for the fourth quarter grew to $3.3 billion, an increase of 14 percent versus the same quarter last year. North American Retail comparable sales increased three percent, up from one percent in the third quarter, continuing the momentum seen throughout the year. Including acquisitions, sales grew 16 percent for North American Delivery and 67 percent for European operations.

Staples' net income of $165 million for the quarter, or $0.35 per share on a diluted basis, exceeded analyst expectations of $0.33. This is a 21 percent increase over earnings per share of $0.29 reported for the fourth quarter of 2001, excluding special items. On a GAAP basis, fourth quarter earnings per share grew 75 percent.

               
13 Weeks 13 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
February 1, February 2, February 1, February 2,
2003 2002 2003 2002
 
Net income (in thousands):
Net income as
reported (GAAP) $ 164,658 $ 93,798 $ 446,100 $ 264,970
Special items (net of
applicable taxes):
Inventory writedown
for store closures
(included in cost
of goods sold) - 4,551 - 4,551
Store closure charge - 30,807 - 30,807
Asset impairment and
other charges - 6,591 - 6,591
Tax benefit - - (29,000 ) -
Net income excluding
special items $ 164,658 $ 135,747 $ 417,100 $ 306,919
               
13 Weeks 13 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
February 1, February 2, February 1, February 2,
2003 2002 2003 2002
 
Diluted earnings per share:
Diluted earnings per
share as reported (GAAP):
- Staples, Inc. Stock $ 0.35 $ 0.20 $ 0.94 $ 0.40
- Staples RD Stock 0.17
Special items (net
of applicable taxes):
Inventory writedown
for store closures
(included in cost
of goods sold) - 0.01 - 0.01
Store closure charge - 0.07 - 0.07
Asset impairment and
other charges - 0.01 - 0.01
Tax benefit - - (0.06) -
Diluted earnings per
share excluding
special items $ 0.35 $ 0.29 $ 0.88 $ 0.66

Staples' success was fueled by outstanding operational execution, investments in productivity improvements, and excellent customer service that drove top line and margin growth. In 2002, Staples also drove significant structural shifts to attain record performance. Highlights include:

-- Shifted the customer mix by selling more to small businesses and power users and reduced reliance on less profitable casual consumers.

-- Increased the focus on selling Staples branded products to enhance customer loyalty and increase sales and margins.

-- Acquired two Delivery businesses with better margin characteristics to increase the overall margin profile of the company.

-- Developed a differentiated store format and remodeled a large percentage of stores to the new, customer-centric "Dover" model.

-- Shifted the channel mix by growing the Delivery business faster than the Retail business, with the benefits of higher margins and returns.

-- Transitioned from a primarily North American entity to a much more global presence with the acquisition of the European catalog business, giving Staples access to four new countries.

-- Shifted the Staples culture from one based on tasks and transactions to one based on customers, driven by the Back to Brighton service initiative, and a new brand promise of making it easy to buy office products at Staples.

From a Staples business unit perspective, Q4 and year-end highlights include:

North American Retail

Fourth quarter sales were $2.06 billion, up seven percent versus a year ago. Business unit income for the quarter was $173 million, up 16 percent versus last year. Staples ended the year operating 1,300 stores in North America, with the addition of 72 new stores during the year. Staples expects to open between 75 to 90 new stores in North America in 2003.

Staples' Retail business benefited from strong sales during the holiday season and through January, the start of the important "back to business" selling season, which continues into the first quarter of 2003.

North American Delivery

Consistent with its performance all year, the fourth quarter yielded outstanding results with $886 million in sales, up 16 percent versus a year ago, and leading the industry with 10 percent organic growth. Business unit income was $85 million for the quarter, an increase of 30 percent versus last year, including Medical Arts Press. Total e-commerce sales exceeded $450 million in the fourth quarter and reached $1.6 billion for the full year. The number of orders placed electronically reached 53 percent of volume in the fourth quarter, versus 45 percent a year ago.

The Contract business added 10,600 new accounts this year, 2,200 in Q4, and continues to gain share at a rapid pace. Staples Business Delivery had its strongest sales growth of the year in the fourth quarter and Quill finished the year with record performance in account acquisition and retention, while remaining the most profitable business in the Staples portfolio.

Europe

Sales for the fourth quarter of $393 million were up 67 percent versus the same quarter last year, or 46 percent in local currencies. Business unit income was $14 million for the quarter. The newly established Delivery platform is performing well, with results of the acquired business ahead of plan.

While retail comparable sales declined three percent in the fourth quarter, impacted by weak performance in Germany, store operations in the UK, Netherlands and Portugal performed well with improved sales and profitability for 2002. Staples opened three new stores in Europe in the fourth quarter and 14 for the year, for a total of 188 stores in the four countries where it operates retail stores.

Outlook

For 2003, Staples anticipates 20 percent earnings per share growth for the year. The company expects to achieve mid to high single digit organic revenue growth, and two to three percent additional growth from recent acquisitions. The company expects North American Retail comparable sales to remain in the low single digits.

For the first quarter of this year, Staples expects to achieve earnings per share in the range of $0.16 to $0.17. Revenues in the first quarter are expected to increase in the range of high single to low double digits, with North American Retail comparable sales in the low single digit range.

About Staples

Staples, Inc. is an $11.6 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 58,000 associates serving customers in approximately 1,500 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 open new stores successfully; our Dover format store may not be successful; 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 and international conflict; 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; and those other factors discussed in our quarterly report on Form 10-Q for the quarter ending November 2, 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.

 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar Amounts in Thousands, Except Share Data)
 
    February 1,     February 2,
2003 2002
 
ASSETS
Current Assets:
Cash and cash equivalents $ 596,064 $ 394,824
Merchandise inventories, net 1,555,205 1,459,792
Receivables, net 364,419 338,581
Deferred income taxes 96,229 117,560
Prepaid expenses and other current assets 105,559 92,070
Total current assets 2,717,476 2,402,827
 
Property and Equipment:
Land and buildings 524,730 433,569
Leasehold improvements 621,713 552,250
Equipment 951,439 820,053
Furniture and fixtures 472,935 406,565
Total property and equipment 2,570,817 2,212,437
Less accumulated depreciation and
amortization 1,123,065 853,685
Net property and equipment 1,447,752 1,358,752
 
Lease Acquisition Costs, Net of Accumulated
Amortization 51,450 54,557
Intangible Assets, Net of Accumulated
Amortization 216,391 -
Goodwill 1,207,824 223,718
Other Assets 80,495 53,181
Total assets $ 5,721,388 $ 4,093,035
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,092,172 $ 935,442
Accrued expenses and other current
liabilities 755,483 655,274
Debt maturing within one year 327,671 4,983
Total current liabilities 2,175,326 1,595,699
 
Long-Term Debt 732,041 350,225
Deferred Tax Liability 50,267 6,738
Other Long-Term Obligations 104,862 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
500,831,408 shares at February 1, 2003
and 491,564,105 shares at February 2, 2002 299 295
Additional paid-in capital 1,484,833 1,364,355
Cumulative foreign currency translation
adjustments 11,481 (27,129)
Retained earnings 1,719,091 1,272,991
Less: Staples, Inc. treasury stock at cost,
27,724,578 shares at February 1, 2003
and 27,569,880 shares at February 2, 2002 (556,812) (556,338)
Total stockholders' equity 2,658,892 2,054,174
Total liabilities and stockholders'
equity $ 5,721,388 $ 4,093,035
 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of Income

(Dollar Amounts in Thousands, Except Per Share Data)

 
    (Unaudited)        
13 Weeks Ended 52 Weeks Ended
February 1,     February 2, February 1, February 2,
2003 2002 2003 2002
 
Sales $ 3,335,109 $ 2,929,207 $ 11,596,075 $ 10,744,373
Cost of goods sold
and occupancy costs 2,452,321 2,212,188 8,652,593 8,173,880
Gross profit 882,788 717,019 2,943,482 2,570,493
 
Operating and other expenses:
Operating and selling 478,007 412,958 1,795,428 1,651,846
Pre-opening 2,121 1,293 8,746 13,685
General and
administrative 128,713 84,009 454,501 379,505
Amortization of
intangibles 2,135 - 2,135 -
Amortization of
goodwill - 1,646 - 6,584
Asset impairment and
other charges - 10,717 - 10,717
Store closure charge - 50,092 - 50,092
Interest and other
expense, net 10,450 3,787 20,609 27,219
Total operating
and other expenses 621,426 564,502 2,281,419 2,139,648
 
Income before income
taxes 261,362 152,517 662,063 430,845
Income tax expense 96,704 58,719 215,963 165,875
Net income $ 164,658 $ 93,798 $ 446,100 $ 264,970
 
Net income attributed to:
Staples, Inc. Stock $ 164,658 $ 93,798 $ 446,100 $ 185,110
Staples RD Stock - - - 79,740
Staples.com Stock - - - 120
$ 164,658 $ 93,798 $ 446,100 $ 264,970
 
Basic earnings per common share:
Staples, Inc. Stock $ 0.35 $ 0.20 $ 0.96 $ 0.40
Staples RD Stock $ - $ - $ - $ 0.18
Staples.com Stock $ - $ - $ - $ 0.01
 
Diluted earnings per common share:
Staples, Inc. Stock $ 0.35 $ 0.20 $ 0.94 $ 0.40
Staples RD Stock $ - $ - $ - $ 0.17
Staples.com Stock $ - $ - $ - $ 0.01
 
Number of shares used in computing
basic earnings per common share:
Staples, Inc. Stock 469,214 460,859 466,768 460,362
Staples RD Stock - - - 455,399
Staples.com Stock - - - 7,980
 
Number of shares used in computing
diluted earnings per common share:
Staples, Inc. Stock 474,406 467,475 472,695 466,491
Staples RD Stock - - - 461,379
Staples.com Stock - - - 9,819
       
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
 
Fiscal Year Ended
February 1, February 2,
2003 2002
 
Operating Activities:
Net income $ 446,100 $ 264,970
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 267,209 248,965
Asset impairment and other charges - 10,717
Store closure charge - 50,092
Deferred income tax expense (benefit) 226 (80,370 )
Other 35,767 19,278
Change in assets and liabilities, net of
companies
acquired/divested:
(Increase) decrease in merchandise
inventories (15,781 ) 148,687
Decrease in receivables 62,460 1,855
Increase in prepaid expenses and other
assets (3,574 ) (684 )
Increase in accounts payable, accrued
expenses and other current liabilities 113,026 94,438
Increase in other long-term obligations 8,917 12,960
468,250 505,938
Net cash provided by operating activities 914,350 770,908
 
Investing Activities:
Acquisition of property and equipment (264,692 ) (340,118 )
Acquisition of businesses, net of cash
acquired (1,171,187 ) -
Proceeds from sales and maturities of
short-term investments - 25,535
Proceeds from sales and maturities of
long-term investments - 1,654
Purchase of long-term investments - (250 )
Acquisition of lease rights (347 ) (2,568 )
Net cash used in investing activities (1,436,226 ) (315,747 )
 
Financing Activities:
Proceeds from sale of capital stock 78,895 53,549
Proceeds from borrowings 730,897 522,110
Payments on borrowings (95,235 ) (800,194 )
(Repayments) borrowings under receivables
securitization agreement - (86,109 )
Termination of interest rate swap agreement - 18,027
Purchase of treasury stock (474 ) (26,083 )
Net cash provided by (used in) financing
activities 714,083 (318,700 )
 
Effect of exchange rate changes on cash 9,033 (5,197 )
 
Net increase in cash and cash equivalents 201,240 131,264
Cash and cash equivalents at beginning of
period 394,824 263,560
Cash and cash equivalents at end of period $ 596,064 $ 394,824
 
STAPLES, INC. AND SUBSIDIARIES
Segment Reporting
(Dollar Amounts in Thousands)
 
  (Unaudited)     (Unaudited)
13 Weeks Ended 52 Weeks Ended
February 1,     February 2, February 1,     February 2,
2003 2002 2003 2002
 
Sales by Segment:
North American
Retail $ 2,055,638 $ 1,928,830 $ 7,166,105 $ 6,914,219
North American
Delivery 886,349 764,663 3,389,625 3,008,618
European Operations 393,122 235,714 1,040,345 796,356
Total $ 3,335,109 $ 2,929,207 $ 11,596,075 $ 10,719,193
Divested Business - - - 25,180
Consolidated sales $ 3,335,109 $ 2,929,207 $ 11,596,075 $ 10,744,373
 
Business Unit Income:
North American
Retail (1) $ 172,630 $ 142,046 $ 413,895 $ 321,364
North American
Delivery 85,462 65,575 265,055 205,630
European Operations 13,720 9,492 3,722 (6,584 )
Total business unit
income $ 271,812 $ 217,113 $ 682,672 $ 520,410
Divested Businesses - - - (1,537 )
Store Closure Charge - (50,092 ) - (50,092 )
Asset Impairment and
Other Charges - (10,717 ) - (10,717 )
Interest and Other
Expense, Net (10,450 ) (3,787 ) (20,609 ) (27,219)
Consolidated income

before income taxes

$

261,362

$ 152,517 $ 662,063 $ 430,845
 

(1) Business Unit Income for the 13 and 52 weeks ended February 2,

2002 includes a $7.4 million charge related to the write-down of

inventory to net realizable value for 31 stores closed in Q1 2002.

Contact:

Staples, Inc.
Media Contact :
Paul Capelli, 508/253-8530
paul.capelli@staples.com
or
Investor Contact :
Laurel Lefebvre, 508/253-4080
laurel.lefebvre@staples.com

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