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Staples, Inc. Reports First Quarter 2003 Sales and Earnings; Company Posts 15 Percent Sales Growth And Two Percent Increase In North American Retail Comparable Sales

Tuesday, May 20, 2003 7:00 am EDT

Dateline:

FRAMINGHAM, Mass.

Public Company Information:

NASDAQ:
SPLS
"Staples delivered another strong quarter, and continues to grow sales profitably while making it easy for our customers to shop for office products"

FRAMINGHAM, Mass.--(BUSINESS WIRE)--Staples, Inc. (Nasdaq: SPLS) announced today the results for its first quarter ended May 3, 2003. Total company sales for the quarter grew to $3.1 billion, an increase of 15 percent versus $2.7 billion reported for the same quarter of the prior year. North American Retail comparable sales increased two percent.

The company achieved pro forma net income of $86 million for the quarter, or earnings per share of $0.18, on a diluted basis, exceeding analyst consensus of $0.17. This represents a 29 percent increase over earnings per share of $0.14 reported for the first quarter of 2002, after excluding a $.06 per share one-time tax benefit received in the first quarter of 2002. On a GAAP basis, net income was $25 million or $.05 per share, compared to $.20 per share for the first quarter of 2002, including the one-time tax benefit received in that quarter.

Due to the recent change in accounting rules for recording vendor consideration (Emerging Issues Task Force Consensus No. 02-16), the company recorded a one-time, non-cash adjustment, reducing first quarter net income for GAAP purposes by $62 million after taxes. Pro forma net income shows Staples' results as if the company had always been subject to the new accounting method.

"Staples delivered another strong quarter, and continues to grow sales profitably while making it easy for our customers to shop for office products," said Ron Sargent, Staples president and CEO. "The bottom line is, execution matters, and Staples' associates are executing better than anyone else in our industry."

Highlights of Staples' business units for the first quarter include:

North American Retail

North American Retail sales for the first quarter were $1.8 billion, up seven percent versus first quarter results a year ago. Business unit income was $76 million, up 28 percent versus last year. Staples added 10 new stores in North America this quarter, with nine in the United States and one in Canada.

North American Delivery

North American Delivery sales for the first quarter were $920 million, a 13 percent increase versus last year's first quarter. Business unit income of $59 million was up 23 percent versus last year's first quarter. Excluding sales from MAP, organic growth was seven percent, leading the industry. Staples' Contract business successfully launched a new version of StaplesLink.com this quarter, growing Internet penetration to 75 percent of all transactions, and added more than 2,700 new accounts.

Europe

European revenues of $385 million were up 87 percent versus last year's first quarter, including the benefit of foreign currency translation. Sales from the acquired European catalog business added $137 million to the top line, so organic growth in Europe was 20 percent. Business unit income was $9.6 million, compared to a loss of $1.6 million in last year's first quarter. Staples opened three new stores, with two in the UK and one in the Netherlands. Staples European Catalog entered Sweden, expanding the delivery business to seven countries.

Outlook

For the second quarter of 2003, Staples anticipates earnings per share will be in line with existing analyst estimates. Second quarter revenues are expected to increase in the low double-digit percentage range, with North American Retail comparable sales in the low single digits.

For the full year, Staples anticipates pro forma 20 percent earnings growth versus the $0.88 we reported last year. Sales growth is expected to be in the range of mid to high single-digit organic growth, and two to three percent growth from the two recent acquisitions. Low single digit positive North American Retail comps are expected for the full year.

The following table reconciles Staples' results on a GAAP basis with results adjusted for the accounting change and the one-time tax benefit. The company uses the adjusted net income and diluted earnings per share to measure operating performance and believes such information is beneficial to an understanding of its results of operations on a comparative basis.

    13 Weeks Ended
May 3, 2003         May 4, 2002
Net income (in thousands):
Net income as reported (GAAP) $ 24,756 $ 93,869
Adjustments:
Impact of accounting change (net of
taxes) 61,724 -
Tax benefit - (29,000)
Net income as adjusted $ 86,480 $ 64,869
 
 
Diluted earnings per share:
Diluted earnings per share as reported
(GAAP) $ 0.05 $ 0.20
Adjustments:
Impact of accounting change (net of
taxes) 0.13 -
Tax benefit - (0.06)
Diluted earnings per share as adjusted $ 0.18 $ 0.14

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; 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 annual report on Form 10-K for the fiscal year ended February 1, 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)

 
 
 
    May 3, 2003     February 1,
(Unaudited) 2003
ASSETS
Current Assets:
Cash and cash equivalents $ 226,019 $ 596,064
Merchandise inventories, net 1,452,633 1,555,205
Receivables, net 396,051 364,419
Deferred income taxes 133,935 96,229
Prepaid expenses and other current assets 95,141 105,559
Total current assets 2,303,779 2,717,476
 
Property and Equipment:
Land and buildings 528,676 524,730
Leasehold improvements 644,976 621,713
Equipment 975,474 951,439
Furniture and fixtures 481,257 472,935
Total property and equipment 2,630,383 2,570,817
Less accumulated depreciation and
amortization 1,190,416 1,123,065
Net property and equipment 1,439,967 1,447,752
 
Lease Acquisition Costs, Net of
Accumulated Amortization 50,024 51,450
Intangible Assets, Net of
Accumulated Amortization 214,493 216,391
Goodwill 1,207,824 1,207,824
Other Assets 79,956 80,495
Total assets $ 5,296,043 $ 5,721,388
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,008,625 $ 1,092,172
Accrued expenses and other
current liabilities 664,665 755,483
Debt maturing within one year 2,017 327,671
Total current liabilities 1,675,307 2,175,326
 
Long-Term Debt 744,192 732,041
Deferred Income Taxes 53,122 50,267
Other Long-Term Obligations 108,313 104,862
 
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
502,504,546 shares at May 3, 2003 and
500,831,408 shares at February 1, 2003 299 299
Additional paid-in capital 1,513,496 1,484,833
Cumulative foreign currency translation
adjustments 14,255 11,481
Retained earnings 1,743,847 1,719,091
Treasury stock at cost - 27,717,994 shares
at May 3, 2003, and 27,724,578 shares
at February 1, 2003 (556,788 ) (556,812 )
Total stockholders' equity 2,715,109 2,658,892
Total liabilities and stockholders'
equity $ 5,296,043 $ 5,721,388
 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
 
 
   

13 Weeks Ended

May 3,       May 4,
2003 2002
 
Sales $ 3,146,757 $ 2,744,766
Cost of goods sold and occupancy costs 2,403,924 2,084,848
Gross profit 742,833 659,918
 
Operating and other expenses:
Operating and selling 566,912 445,610
Pre-opening 1,237 1,886
General and administrative 126,506 107,084
Amortization of intangibles 1,943 -
Interest and other expense, net 6,940 2,372
Total operating and other expenses 703,538 556,952
 
Income before income taxes 39,295 102,966
Income tax expense 14,539 9,097
Net income $ 24,756 $ 93,869
 
 
Basic earnings per common share: $ 0.05 $ 0.20
 
Diluted earnings per common share: $ 0.05 $ 0.20
 
Number of shares used in computing basic
earnings per common share: 470,930 463,854
 

Number of shares used in computing diluted

 

earnings per common share: 477,821 471,828
 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
(Unaudited)
     

13 Weeks Ended

 

May 3, May 4,
2003 2002
Operating Activities:
Net income $ 24,756 $ 93,869
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 70,798 63,117
Tax benefit from worthless stock deduction - (29,000 )
Deferred tax (benefit) expense (37,461 ) 7,349
Other 13,792 11,551
Change in assets and liabilities
Decrease (increase) in merchandise
inventories 121,111 (11,472 )
(Increase) decrease in receivables (28,043 ) 9,101
Decrease in prepaid expenses and other
assets 9,254 5,942
Decrease in accounts payable, accrued
expenses and other current liabilities (196,339 ) (24,158 )
Increase in other long-term obligations 1,798 3,428
Net cash (used in) provided by operating
activities (20,334 ) 129,727
 
Investing Activities:
Acquisition of property and equipment (43,876 ) (62,944 )
Other - (276 )
Net cash used in investing activities (43,876 ) (63,220 )
 
Financing Activities:
Proceeds from sale of capital stock 15,825 24,415
Proceeds from borrowings - 1,425
Payments on borrowings (326,427 ) (677 )
Reissuance (purchase) of treasury stock 24 (484 )
Net cash (used in) provided by financing
activities (310,578 ) 24,679
 
Effect of exchange rate changes on cash 4,743 1,746
 
Net (decrease) increase in cash and
cash equivalents (370,045 ) 92,932
Cash and cash equivalents at beginning
of period 596,064 394,824
Cash and cash equivalents at end of period $ 226,019 $ 487,756
 
STAPLES, INC. AND SUBSIDIARIES
Segment Reporting
(Dollar Amounts in Thousands)
(Unaudited)
 
 
    13 Weeks Ended
May 3,       May 4,
2003 2002
 
Sales:
North American Retail $ 1,842,721 $ 1,726,893
North American Delivery 919,520 811,991
European Operations 384,516 205,882
Total sales $ 3,146,757 $ 2,744,766
 
Business Unit Income / (Loss):
North American Retail $ 75,703 $ 59,218
North American Delivery 58,912 47,734
European Operations 9,595 (1,614 )
Total business unit income $ 144,210 $ 105,338
Interest and other expense, net (6,940 ) (2,372 )
Impact of change in accounting principle (97,975 ) -
Income before income taxes $ 39,295 $ 102,966
         
STAPLES, INC. AND SUBSIDIARIES
Pro Forma Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
 

Pro Forma for the

13 Weeks Ended
May 3, May 4,
2003 2002
 
Sales $ 3,146,757 $ 2,744,766
Cost of goods sold and occupancy costs 2,305,949 2,028,383
Gross profit 840,808 716,383
 
Operating and other expenses:
Operating and selling 566,912 502,075
Pre-opening 1,237 1,886
General and administrative 126,506 107,084
Amortization of intangibles 1,943 -
Interest and other expense, net 6,940 2,372
Total operating and other expenses 703,538 613,417
 
Income before income taxes 137,270 102,966
Income tax expense 50,790 9,097
Net income $ 86,480 $ 93,869
 
 
Basic earnings per common share: $ 0.18 $ 0.20
 
Diluted earnings per common share: $ 0.18 $ 0.20
 
Number of shares used in computing basic
earnings per common share: 470,930 463,854
 
Number of shares used in computing diluted
earnings per common share: 477,821 471,828
 

STAPLES, INC. AND SUBSIDIARIES

Pro Forma Consolidated Statements of Income

(Amounts in Thousands, Except Per Share Data)
(Unaudited)
 
                            Pro Forma

Pro Forma for the

for the

13 Weeks Ended

Year Ended
May 4, August 3, Nov. 2, Feb. 1, Feb. 1,
2002   2002   2002   2003   2003
 
Sales $ 2,744,766 $ 2,426,475 $ 3,089,725 $ 3,335,109 $ 11,596,075
Cost of goods
sold and
occupancy
costs 2,028,383 1,777,309 2,221,639 2,382,202 8,409,533
Gross profit 716,383 649,166 868,086 952,907 3,186,542
 
Operating and
other expenses:
Operating
and selling 502,075 451,210 537,077 548,126 2,038,488
Pre-opening 1,886 2,346 2,393 2,121 8,746
General and
administrative 107,084 98,698 120,006 128,713 454,501
Amortization
of intangibles - - - 2,135 2,135
Interest and
other expense,
net 2,372 2,381 5,406 10,450 20,609
Total
operating
and other
expenses 613,417 554,635 664,882 691,545 2,524,479
 
Income before
income taxes 102,966 94,531 203,204 261,362 662,063
Income tax
expense 9,097 34,976 75,186 96,704 215,963
Net income $ 93,869 $ 59,555 $ 128,018 $ 164,658 $ 446,100
 
 
Basic earnings
per common
share: $ 0.20 $ 0.13 $ 0.27 $ 0.35 $ 0.96
 
Diluted
earnings per
common share: $ 0.20 $ 0.13 $ 0.27 $ 0.35 $ 0.94

Contact:

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

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