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Staples, Inc. Reports First Quarter 2004 Sales Increased 12 Percent; Earnings Per Share Exceed Analyst Consensus By 3 Cents

North American Retail Comparable Sales Rose to an Industry-Leading Five Percent

North American Delivery Sales Accelerated in the First Quarter, Growing 11 Percent

Tuesday, May 18, 2004 7:00 am EDT

Dateline:

FRAMINGHAM, Mass.

Public Company Information:

NASDAQ:
SPLS
"Delivering on our promise to make buying office products easy for our customers, coupled with executing our strategy to drive return on net assets, remain Staples' recipe for achieving superior performance and differentiation"

FRAMINGHAM, Mass.--(BUSINESS WIRE)--Staples, Inc. (Nasdaq: SPLS) announced today the results for its first quarter ended May 1, 2004. Total company sales for the quarter grew to $3.45 billion, an increase of 12 percent versus $3.09 billion for the same quarter of the prior year. North American Retail comparable sales increased five percent and North American Delivery sales rose 11 percent.

The company achieved net income of $126 million for the quarter, or earnings per share of $0.25, on a diluted basis, exceeding analyst consensus of $0.22. This represents a 39 percent increase over pro forma earnings per share of $0.18 reported for the first quarter of 2003. On a GAAP basis, net income grew 400 percent from the $25 million or $0.05 per share reported for the first quarter of 2003. First quarter 2003 GAAP results included a $62 million adjustment, or $0.13 per share, for the application of EITF 02-16.

"Our associates delivered another terrific quarter, with all segments of the business exceeding expectations," said Ron Sargent, president and CEO. "We're gaining market share and differentiating our company as a result of our focus on customer satisfaction and execution."

Highlights of Staples' performance for the first quarter include:

  • Customer service improvements resulted in the highest retail Mystery Shop and delivery Perfect Order scores in the company's history.
  • North American Retail grew sales 10 percent and operating profit 40 percent.
  • North American Delivery benefited from investments made in 2003, growing sales 11 percent and operating profit 24 percent.
  • Europe grew sales 20 percent and achieved significant improvement in profitability in both the retail and delivery businesses. Operating profit rose 137 percent.
  • The company generated $128 million in free cash flow.

"Delivering on our promise to make buying office products easy for our customers, coupled with executing our strategy to drive return on net assets, remain Staples' recipe for achieving superior performance and differentiation," said Sargent.

Outlook

For the second quarter of 2004, Staples expects to achieve 20 percent earnings per share growth, consistent with current consensus. Second quarter revenues are expected to increase in the high single-digits, with North American Retail comparable sales in the low single-digits.

As a result of achieving earnings per share of $0.03 above expectations in the first quarter, we now expect to deliver more than 20 percent earnings growth for the full year. The company will continue to invest in profitable growth for the future and is comfortable with the existing analyst consensus for earnings per share for the remainder of the year.

About Staples

Staples, Inc. invented the office superstore concept in 1986 and today is the world's largest office products retailer. With 60,000 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 2003 sales of $13 billion, Staples serves consumers and businesses ranging from home-based businesses to Fortune 500 companies in the US, Belgium, Canada, France, Germany, Italy, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom. Headquartered outside of Boston, Staples operates approximately 1,600 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. 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 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 May 1, 2004, 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.

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

May 1, 2004

January 31,

(Unaudited)

2004
ASSETS
Current assets:
Cash and cash equivalents $ 389,818 $ 457,465
Short-term investments 1,028,475 934,275
Receivables, net 411,490 410,330
Merchandise inventories, net 1,377,415 1,465,989
Deferred income taxes 98,011 96,247
Prepaid expenses and other current assets 101,647 114,598
Total current assets 3,406,856 3,478,904
 
Property and equipment:
Land and buildings 598,684 601,063
Leasehold improvements 688,823 692,837
Equipment 1,056,703 1,045,605
Furniture and fixtures 539,684 533,104
Total property and equipment 2,883,894 2,872,609
Less accumulated depreciation and
amortization 1,408,642 1,367,308
Net property and equipment 1,475,252 1,505,301
 
Lease acquisition costs, net of accumulated
amortization 45,230 44,227
Intangible assets, net of accumulated
amortization 207,553 209,541
Goodwill 1,202,007 1,202,007
Other assets 57,097 63,066
Total assets $ 6,393,995 $ 6,503,046
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,058,596 $ 1,110,631
Accrued expenses and other current
liabilities 849,039 822,453
Debt maturing within one year 180,920 190,150
Total current liabilities 2,088,555 2,123,234
 
Long-term debt 549,871 567,433
Deferred tax liability 12,888 7,563
Other long-term obligations 148,985 141,916
 
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
528,883,406 shares at May 1, 2004 and
527,121,843 shares at January 31, 2004 317 316
Additional paid-in capital 1,968,224 1,933,379
Cumulative foreign currency translation
adjustments 61,373 81,002
Retained earnings 2,235,480 2,209,302
Treasury stock at cost - 32,225,898 shares
at May 1, 2004 and 27,927,347 shares at
January 31, 2004 (671,698 ) (561,099 )
Total stockholders' equity 3,593,696 3,662,900
Total liabilities and stockholders'
equity $ 6,393,995 $ 6,503,046
       
 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Data)
 
 
(Unaudited)
13 Weeks Ended
May 1, May 3,
2004 2003
 
Sales $ 3,452,155 $ 3,091,288
Cost of goods sold and occupancy costs 2,516,530 2,379,211
Gross profit 935,625 712,077
 
Operating and other expenses:
Operating and selling 585,597 536,156
Pre-opening 1,683 1,237
General and administrative 144,442 126,506
Amortization of intangibles 1,989 1,943
Interest and other expense, net 3,912 6,940
Total operating and other expenses 737,623 672,782
 
Income before income taxes 198,002 39,295
Income tax expense 72,271 14,539
Net income $ 125,731 $ 24,756
 
Earnings Per Share:
 
Basic earnings per common share: $ 0.25 $ 0.05
 
Diluted earnings per common share: $ 0.25 $ 0.05
 
Number of shares used in computing basic
earnings per common share: 495,193 470,930
 
Number of shares used in computing diluted
earnings per common share: 506,457 477,821
 
Dividends declared per common share $ 0.20 -
 

NOTE: Certain 2003 amounts have been reclassified to reflect changes in accounting for
 coupons as a result of EITF 03-10, which had no impact on net income.

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

13 Weeks Ended

May 1,       May 3,
2004 2003
Operating Activities:
Net income $ 125,731 $ 24,756
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 67,639 70,798
Deferred tax benefit (2,542 ) (37,461 )
Other 12,144 13,792
Changes in assets and liabilities:
Increase in receivables (5,953 ) (28,043 )
Decrease in merchandise inventories 74,609 121,111
Decrease in prepaid expenses and other
assets 12,984 9,254
Decrease in accounts payable (41,730 ) (98,487 )
Decrease in accrued expenses and other
liabilities (62,592 ) (97,852 )
Increase in other long-term obligations 2,558 1,798
Net cash provided by (used in) operating
activities 182,848 (20,334 )
 
Investing Activities:
Acquisition of property and equipment (55,140 ) (43,876 )
Purchase of short-term investments (94,205 ) -
Proceeds from sale of short-term investments - 95,175
Net cash (used in) provided by investing
activities (149,345 ) 51,299
 
Financing Activities:
Proceeds from sale of capital stock 18,912 15,825
Payments on borrowings (2,557 ) (326,427 )
(Purchase) reissuance of treasury stock (110,599 ) 24
Net cash used in financing activities (94,244 ) (310,578 )
 
Effect of exchange rate changes on cash and cash
equivalents (6,906 ) 4,743
 
Net decrease in cash and cash equivalents (67,647 ) (274,870 )
Cash and cash equivalents at beginning of period 457,465 495,889
Cash and cash equivalents at end of period $ 389,818 $ 221,019
 
 
 
STAPLES, INC. AND SUBSIDIARIES
Segment Reporting
(Dollar Amounts in Thousands)
 
 
(Unaudited)

13 Weeks Ended

May 1, May 3,
2004 2003
 
Sales:
North American Retail $ 1,982,383 $ 1,798,761
North American Delivery 1,007,916 908,011
European Operations 461,856 384,516
Total sales $ 3,452,155 $ 3,091,288
 
Business Unit Income:
North American Retail $ 106,114 $ 75,703
North American Delivery 73,105 58,912
European Operations 22,695 9,595
Total business unit income $ 201,914 $ 144,210
Interest and other expense, net (3,912 ) (6,940 )
Impact of change in accounting principle - (97,975 )
Income before income taxes $ 198,002 $ 39,295

Contact:

Staples, Inc.
Media Contact:
Paul Capelli/Deborah Hohler, 508-253-8530/8509
or
Investor Contact:
Laurel Lefebvre/Katy Nash, 508-253-4080/7342

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