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Staples, Inc. Reports Record Fourth Quarter and Fiscal 2003 Results

Net Income Rose 29 Percent and Revenues Increased 10 Percent in the Fourth Quarter

North American Retail Comparable Sales Rose Four Percent for the Quarter and Full-Year

Company to Initiate First-Ever Cash Dividend and Commence Stock Repurchase Program

Thursday, March 4, 2004 7:00 am EST

Dateline:

FRAMINGHAM, Mass.

Public Company Information:

NASDAQ:
SPLS
"I'm incredibly proud of our associates' accomplishments and the progress we made in executing our company-wide objectives for 2003: bringing the easy brand promise to life, improving our supply chain and continuing to drive profitable sales, operating margin improvement and asset productivity"

FRAMINGHAM, Mass.--(BUSINESS WIRE)--Staples, Inc. (Nasdaq: SPLS) announced today the results for its fourth quarter and full-year ended January 31, 2004. For the fourth quarter, net income rose 29 percent, compared to the same quarter of 2002. Diluted earnings per share were $0.42 for the quarter, exceeding analyst expectations of $0.41. This is a 20 percent increase over the $0.35 per share achieved in the prior fourth quarter. Total company operating margins rose to 9.26 percent, the best quarterly performance in the company's history.

Total company sales for the fourth quarter grew 10 percent, compared to the prior fourth quarter, to $3.7 billion. North American comparable sales exceeded the company's expectations, increasing four percent over the same quarter in 2002. North American Delivery quarterly sales increased eight percent and European operations grew sales 18 percent compared to the fourth quarter of 2002.

For fiscal year 2003, the company achieved pro forma net income of $552 million or $1.12 per share on a diluted basis. Pro forma results exclude the adjustment related to the application of EITF 02-16, which reduced the company's first quarter 2003 net income by $62 million, net of taxes. Pro forma net income increased 32 percent from 2002, excluding a non-recurring $29 million tax benefit in the first quarter of 2002. Net income in 2003 increased 10 percent on a GAAP basis from 2002. Sales for the full-year reached $13.2 billion, a 14 percent increase compared to 2002. Full-year North American Retail comparable store sales increased four percent.

"I'm incredibly proud of our associates' accomplishments and the progress we made in executing our company-wide objectives for 2003: bringing the easy brand promise to life, improving our supply chain and continuing to drive profitable sales, operating margin improvement and asset productivity," said Ron Sargent, president and CEO.

Key company accomplishments in 2003 include:

  • Customer service improved in all channels. Mystery shop and Perfect Order scores reached all-time highs.
  • The company developed a 14,600 square foot store model with fewer SKU's and a lower cost labor model, driving attractive returns with lower volume stores.
  • Worldwide e-commerce sales reached $2.1 billion for the year, an increase of 31 percent over 2002, representing more than half of Staples' worldwide delivery sales.
  • Return on net assets climbed to 10.8 percent, exceeding the company's cost of capital.
  • The company generated $742 million in free cash flow in 2003, ending the year with $1.4 billion in cash and short-term investments on the balance sheet.

The company also announced the initiation of an annual cash dividend. The first dividend of $0.20 per share of outstanding common stock will be payable on May 17, 2004, to shareholders of record on April 26, 2004. The company is also authorized to repurchase up to $1 billion in common stock over the next two years, and expects to buy back approximately $400 million in the current year.

"Over the last two years we have transformed Staples into more than a growth company," said Sargent. "Our operating results, capital discipline and working capital management have positioned us not only to grow, but also to return some of our excess cash to our loyal shareholders through a dividend and stock repurchase program. Clearly, we are confident that our business will continue its strong financial performance well into the future."

Outlook

For both the first quarter ending May 1, 2004 and fiscal year 2004, the company expects earnings per share to grow 20 percent. Revenues are expected to increase approximately 10 percent, with North American Retail comparable sales in the low-single digit range.

About Staples

Staples, Inc. is headquartered outside of Boston and sells a wide range of office products, including supplies, technology, furniture, and business services. With 2003 sales of $13.2 billion, Staples is committed to make buying office products easy. Approximately 60,000 associates serve consumers and businesses of all sizes -- 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. Staples invented the office superstore concept and today, with nearly 1,600 office superstores, is the largest operator of office superstores in the world. Staples also serves its customers through its 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 annual report on Form 10-K for the year ended January 31, 2004, which we filed with the Securities and Exchange Commission this morning, 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.

Financial information follows.

 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar Amounts in Thousands, Except Share Data)
 
 
 
      January 31,       February 1,
2004 2003
ASSETS
Current Assets:
Cash and cash equivalents $ 457,465 $ 495,889
Short-term investments 934,275 100,175
Receivables, net 410,330 364,419
Merchandise inventories, net 1,465,989 1,555,205
Deferred income taxes 96,247 96,229
Prepaid expenses and other current assets 114,598 105,559
Total current assets 3,478,904 2,717,476
 
Property and Equipment:
Land and buildings 601,063 524,730
Leasehold improvements 692,837 621,713
Equipment 1,045,605 951,439
Furniture and fixtures 533,104 472,935
Total property and equipment 2,872,609 2,570,817
Less accumulated depreciation and amortization 1,367,308 1,123,065
Net property and equipment 1,505,301 1,447,752
 
Lease Acquisition Costs, Net of
Accumulated Amortization 44,227 51,450
Intangible Assets, Net of Accumulated
Amortization 209,541 216,391
Goodwill 1,202,007 1,207,824
Other Assets 63,066 80,495
Total assets $ 6,503,046 $ 5,721,388
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,110,631 $ 1,092,172
Accrued expenses and other current liabilities 822,453 755,483
Debt maturing within one year 190,150 327,671
Total current liabilities 2,123,234 2,175,326
 
Long-Term Debt 567,433 732,041
Deferred Tax Liability 7,563 50,267
Other Long-Term Obligations 141,916 104,862
 
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized; no shares issued - -
Common stock, $.0006 par value, 2,100,000,000
shares authorized; issued 527,121,843 shares
at January 31, 2004 and 500,831,408 shares
at February 1, 2003 316 299
Additional paid-in capital 1,933,379 1,484,833

Cumulative foreign currency translation adjustments

81,002 11,481
Retained earnings 2,209,302 1,719,091
Less: treasury stock at cost, 27,927,347
shares at January 31, 2004 and
27,724,578 shares at February 1, 2003 (561,099) (556,812)
Total stockholders' equity 3,662,900 2,658,892

Total liabilities and stockholders' equity

$ 6,503,046 $ 5,721,388
 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Data)
 
    (Unaudited)                

13 Weeks Ended

52 Weeks Ended

January 31,       February 1, January 31, February 1,
2004 2003 2004 2003
 
Sales $ 3,681,155 $ 3,335,109 $ 13,181,222 $ 11,596,075

Cost of goods sold and occupancy costs

2,576,596 2,452,321 9,559,123 8,652,593
Gross profit 1,104,559 882,788 3,622,099 2,943,482
 

Operating and other expenses:

Operating and selling

616,225 478,007 2,282,092 1,795,428
Pre-opening 3,678 2,121 9,639 8,746

General and administrative

141,805 128,713 524,094 454,501

Amortization of intangibles

2,025 2,135 7,986 2,135

Interest and other expense, net

4,496 10,450 20,176 20,609

Total operating and other expenses

768,229 621,426 2,843,987 2,281,419
 

Income before income taxes

336,330 261,362 778,112 662,063
Income tax expense 124,442 96,704 287,901 215,963
Net income $ 211,888 $ 164,658 $ 490,211 $ 446,100
 
 

Basic earnings per common share:

$ 0.43 $ 0.35 $ 1.01 $ 0.96
 

Diluted earnings per common share:

$ 0.42 $ 0.35 $ 0.99 $ 0.94
 

Number of shares used in computing
 basic earnings per common share:

493,938 469,214 483,966 466,768
 

Number of shares used in computing
 diluted earnings per common share:

506,422 474,406 493,491 472,695
         
 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
 
 
52 Weeks Ended
 
January 31, February 1,
2004 2003
 
Operating Activities:
Net income $ 490,211 $ 446,100

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 282,811 267,209
Deferred income taxes (benefit) expense (13,725 ) 226
Other 36,434 35,767

Changes in assets and liabilities, net of acquisitions:

(Increase) decrease in receivables (4,218 ) 62,460
Decrease (increase) in merchandise inventories 147,130 (15,781 )
Increase in prepaid expenses and other assets (34 ) (3,574 )
(Decrease) increase in accounts payable (27,266 ) 49,396
Increase in accrued expenses and other liabilities 95,549 63,630
Increase in other long-term obligations 12,840 8,917
 
Net cash provided by operating activities 1,019,732 914,350
 
Investing Activities:
Acquisition of property and equipment (277,793 ) (264,692 )
Acquisition of businesses, net of cash acquired (2,910 ) (1,171,187 )
Purchase of short-term investments (834,100 ) (100,175 )
Acquisition of lease rights

 

-

(347 )
 
Net cash used in investing activities (1,114,803 ) (1,536,401 )
 
Financing Activities:
Proceeds from sale of capital stock 389,793 78,895
Proceeds from borrowings

 

-

730,897
Payments on borrowings (325,235 ) (95,235 )

Repayments under receivables securitization agreement

(25,000 )

 

-

Purchase of treasury stock (4,287 ) (474 )
 
Net cash provided by financing activities 35,271 714,083
 

Effect of exchange rate changes on cash and cash equivalents

21,376 9,033
 
Net (decrease) increase in cash and cash equivalents (38,424 ) 101,065
Cash and cash equivalents at beginning of period 495,889 394,824
 
Cash and cash equivalents at end of period $ 457,465 $ 495,889
 
STAPLES, INC. AND SUBSIDIARIES
Segment Reporting
(Dollar Amounts in Thousands)
 
 
      (Unaudited)        
13 Weeks Ended 52 Weeks Ended
   

January 31,

 

February 1,

 

January 31,

February 1,
2004 2003 2004 2003
Sales:
North American Retail $ 2,259,799 $ 2,055,638 $ 7, 841,346 $ 7,166,105
North American Delivery 957,125 886,349 3, 740,969 3,389,625
European Operations 464,231 393,122 1, 598,907 1,040,345
 
Total sales $ 3,681,155 $ 3,335,109 $ 13, 181,222 $ 11,596,075
 
 
Business Unit Income / (Loss):
North American Retail $ 220,307 $ 172,630 $ 523,612 $ 413,895
North American Delivery 90,306 85,462 308,305 265,055
European Operations 30,213 13,720 64,346 3,722
 
Total business unit income $ 340,826 $ 271,812 $ 896,263 $ 682,672
Interest and other expense, net (4,496 ) (10,450 ) (20,176 ) (20,609 )
Impact of change in accounting principle - - (97,975 ) -
 
Income before income taxes $ 336,330 $ 261,362 $ 778,112 $ 662,063
 
STAPLES, INC. AND SUBSIDIARIES
Pro Forma Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Data)
 
 
(Unaudited)          
Pro Forma for the Pro Forma for the
13 Weeks Ended

52 Weeks Ended

January 31,

 

 

February 1,

 

January 31, February 1,
2004 2003 2004 2003
 
Sales $ 3,681,155 $ 3,335,109 $ 13,181,222 $ 11,596,075
Cost of goods sold and occupancy costs 2,576,596 2,382,202 9,461,148 8,409,533
 
Gross profit 1,104,559 952,907 3,720,074 3,186,542
 
Operating and other expenses:
Operating and selling 616,225 548,126 2,282,092 2,038,488
Pre-opening 3,678 2,121 9,639 8,746
General and administrative 141,805 128,713 524,094 454,501
Amortization of intangibles 2,025 2,135 7,986 2,135
Interest and other expense, net 4,496 10,450 20,176 20,609
 
Total operating and other expenses 768,229 691,545 2,843,987 2,524,479
 
 
Income before income taxes 336,330 261,362 876,087 662,063
Income tax expense 124,442 96,704 324,152 215,963
 
Net income $ 211,888 $ 164,658 $ 551,935 $ 446,100
 
 
Basic earnings per common share: $ 0.43 $ 0.35 $ 1.14 $ 0.96
 
Diluted earnings per common share: $ 0.42 $ 0.35 $ 1.12 $ 0.94
 

Number of shares used in computing basic earnings per common share:

493,938 469,214 483,966 466,768
 

Number of shares used in computing diluted earnings per common share:

506,422 474,406 493,491 472,695

Contact:

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

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