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Staples, Inc. Reports Record Fourth Quarter and Fiscal 2005 Results; Earnings Per Share Increased 18 Percent for the Fourth Quarter and 20 Percent for the Fiscal Year; Company to Increase Annual Cash Dividend by 32 Percent

Tuesday, February 28, 2006 7:00 am EST

Dateline:

FRAMINGHAM, Mass.

Public Company Information:

NASDAQ:
SPLS
"While I'm really proud of what the team has accomplished over the past two decades, I'm even more impressed with our people's commitment and enthusiasm to keep driving our business forward."

FRAMINGHAM, Mass.--(BUSINESS WIRE)--Staples, Inc. (NASDAQ: SPLS) announced today the results for its fourth quarter and fiscal year ended January 28, 2006. Total company sales for the fourth quarter grew nine percent to $4.5 billion compared to the same quarter of 2004. North American Retail revenues increased eight percent and same store sales rose three percent versus last year. North American Delivery sales increased 18 percent. International sales grew nine percent in local currency and were flat in US dollars. Total company net income of $290 million rose 15 percent, and earnings per share of $0.39, on a diluted basis, rose 18 percent compared to the fourth quarter of 2004.

For fiscal year 2005, sales reached $16.1 billion, an 11 percent increase compared to 2004. Full year North American Retail sales rose nine percent and comparable store sales increased three percent. North American Delivery revenues increased 18 percent. International sales rose 10 percent in local currency or nine percent in US dollars. The company reported 2005 net income of $834 million, an 18 percent increase versus last year. Earnings per share of $1.12, on a diluted basis, rose 20 percent versus 2004.

"Our 69,000 associates delivered great results in 2005," said Ron Sargent, Staples' chairman and CEO. "Not only did the team achieve our financial objectives for the year, but we also made solid progress on several initiatives to sustain our long term growth."

Key company accomplishments for the fourth quarter and year:

Total Company

  • Staples' own brand products grew to 18 percent of sales for the year.
  • Inventory turns increased 17 basis points to 5.76 times, continuing to demonstrate the benefits of the Summit supply chain program.
  • The company generated $779 million in free cash flow and ended the year with $1.6 billion in cash and short-term investments.

North American Retail

  • Staples Copy & Print Centers introduced new technology, including web submission and e-mail acceptance, and grew sales in the double digits.
  • The company opened 99 stores for the year, including 25 stores in the Chicago market.

North American Delivery

  • All three North American Delivery businesses drove double digit sales growth for the full year, while expanding operating margins.
  • Worldwide e-commerce sales reached $3.8 billion for the year, a 27 percent increase versus 2004.

International

  • In Q4, Staples' same store sales in Europe retail rose three percent, the best performance since early 2003.
  • International operations demonstrated improved execution and marketing effectiveness, posting a 3.6 percent operating margin in Q4.

The company also announced an annual cash dividend of $0.22 per share payable on April 20, 2006, to shareholders of record on March 31, 2006. This represents a 32 percent increase versus 2005.

"As we celebrate Staples' 20th anniversary in 2006, we remain committed to making it easy for our customers to buy office products," said Sargent. "While I'm really proud of what the team has accomplished over the past two decades, I'm even more impressed with our people's commitment and enthusiasm to keep driving our business forward."

Outlook

For the first quarter of 2006, Staples anticipates high single-digit sales growth for the total company and expects earnings per share to grow 15 to 20 percent. For the full year, the company expects low double-digit sales growth and expects earnings per share to grow 15 to 20 percent. Earnings growth expectations for the first quarter and full year 2006 refer to 2005 earnings restated to include the impact of stock compensation expense under the Financial Accounting Standards Board's statement 123R, which is effective beginning in Q1 2006. The company will restate its quarterly and year-end results for 2005 to reflect the impact of stock options. Pro forma restated financial statements are available on the "Financial Measures" section of the investor relations website on www.staples.com. The company's earnings outlook also reflects the impact of a 53rd week in fiscal 2006.

About Staples

Staples, Inc. invented the office superstore concept in 1986 and today is the world's largest office products company. With 69,000 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 2005 sales of $16.1 billion, Staples serves consumers and businesses ranging from home-based businesses to Fortune 500 companies in 21 countries throughout North and South America, Europe and Asia. Headquartered outside of Boston, Staples operates approximately 1,780 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 including, but not limited to, the information set forth under the heading "Outlook" and other statements regarding our future business and financial performance. 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 and enter new markets 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 that impact business and consumer spending; if we are unable to attract and retain qualified associates, our business and financial performance may suffer; 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, extreme weather-related disruptions and seasonality; our expanding international operations expose us to the unique risks inherent in foreign operations; our business may be adversely affected by the actions of and risks associated with our third-party vendors; our expanded offering of proprietary branded products may not improve our financial performance and may expose us to product liability claims; 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 may adversely affect our business and financial performance; and those other factors discussed in our annual report on Form 10-K for the fiscal year ended January 28, 2006, under the heading "Risk Factors" and elsewhere, 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 28, January 29,
2006 2005
ASSETS
Current assets:
Cash and cash equivalents $ 977,822 $ 997,310
Short-term investments 593,082 472,231
Receivables, net 576,672 485,126
Merchandise inventories, net 1,706,372 1,602,530
Deferred income tax asset 149,257 86,041
Prepaid expenses and other current assets 141,339 138,374
Total current assets 4,144,544 3,781,612
 
Property and equipment:
Land and buildings 705,978 649,175
Leasehold improvements 884,853 762,946
Equipment 1,330,181 1,140,234
Furniture and fixtures 672,931 597,293
Total property and equipment 3,593,943 3,149,648
Less accumulated depreciation and
amortization 1,835,549 1,548,774
Net property and equipment 1,758,394 1,600,874
 
Lease acquisition costs, net of accumulated
amortization 34,885 38,400
Intangible assets, net of accumulated
amortization 240,395 222,520
Goodwill 1,378,752 1,321,464
Other assets 119,619 106,578
Total assets $ 7,676,589 $ 7,071,448
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,435,815 $ 1,241,433
Accrued expenses and other current
liabilities 1,041,200 954,184
Debt maturing within one year 2,891 1,244
Total current liabilities 2,479,906 2,196,861
 
Long-term debt 527,606 557,927
Deferred income tax liability 5,845 23,314
Other long-term obligations 233,426 178,150
Minority interest 4,335 -
 
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
829,695,100 shares at January 28, 2006
and 813,049,139 shares at January 29, 2005 498 488
Additional paid-in capital 2,544,692 2,254,947
Cumulative foreign currency translation
adjustments 87,085 114,427
Retained earnings 3,529,170 2,818,163
Less: treasury stock at cost, 99,253,565
shares at January 28, 2006 and 68,547,587
shares at January 29, 2005 (1,735,974 ) (1,072,829 )
Total stockholders' equity 4,425,471 4,115,196
Total liabilities and
stockholders' equity $ 7,676,589 $ 7,071,448
 
STAPLES, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Dollar Amounts in Thousands, Except Share Data)
       
(Unaudited)
13 Weeks Ended Fiscal Year Ended
January 28, January 29, January 28, January 29,
2006 2005 2006 2005
 
Sales $ 4,462,317 $ 4,076,505 $ 16,078,852 $ 14,448,378
Cost of goods sold
and occupancy costs 3,150,838 2,874,296 11,493,310 10,343,643
Gross profit 1,311,479 1,202,209 4,585,542 4,104,735
 
Operating and other
expenses:
Operating and
selling 683,830 629,895 2,617,958 2,359,551
General and
administrative 169,465 173,833 641,296 610,568
Amortization of
intangibles 2,987 2,596 13,008 8,743
Total operating
expenses 856,282 806,324 3,272,262 2,978,862
 
Operating income 455,197 395,885 1,313,280 1,125,873
 
Other income
(expense):
Interest income 19,217 11,836 59,937 31,042
Interest expense (16,817 ) (11,912 ) (56,773 ) (39,888 )
Miscellaneous
income (expense) (859 ) (23 ) (1,945 ) (1,455 )
Income before
income taxes and
minority interest 456,738 395,786 1,314,499 1,115,572
Income tax expense 166,710 144,462 479,792 407,184
Income before
minority
interests 290,028 251,324 834,707 708,388
Minority interest 47 - 298 -
Net Income $ 289,981 $ 251,324 $ 834,409 $ 708,388
 
Earnings per common
share
Basic $ 0.40 $ 0.34 $ 1.14 $ 0.95
Diluted $ 0.39 $ 0.33 $ 1.12 $ 0.93
 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
   
 
Fiscal Year Ended
January 28, January 29,
2006 2005
Operating activities:
Net income $ 834,409 $ 708,388
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 303,900 278,845
Deferred income tax (benefit) expense (99,551 ) 1,595
Other 44,891 65,771
Change in assets and liabilities, net of
companies acquired:
Increase in receivables (80,166 ) (49,786 )
(Increase) decrease in merchandise
inventories (97,538 ) (63,747 )
Increase in prepaid expenses and other
assets (15,646 ) (8,736 )
Increase (decrease) in accounts payable 187,402 82,355
Increase in accrued expenses and other
current liabilities 136,746 107,608
Increase in other long-term obligations 20,922 56,915
Net cash provided by operating activities 1,235,369 1,179,208
 
Investing activities:
Acquisition of property and equipment (456,103 ) (335,435 )
Acquisition of businesses, net of cash
acquired (40,560 ) (111,657 )
Investment in joint venture, net of cash
acquired (16,636 ) (29,330 )
Proceeds from the sale of short-term
investments 8,097,199 10,708,696
Purchase of short-term investments (8,218,049 ) (10,246,652 )
Net cash used in investing activities (634,149 ) (14,378 )
 
Financing activities:
Proceeds from the sale of capital stock - -
Proceeds from the exercise of stock options
and the sale of stock under employee stock
purchase plans 181,997 206,394
Proceeds from borrowings 535 -
Payments on borrowings (16,735 ) (235,081 )
Repayments under receivables securitization
agreement - -
Cash dividends paid (123,402 ) (99,527 )
Purchase of treasury stock, net (663,145 ) (511,730 )
Net cash (used in) provided by financing
activities (620,750 ) (639,944 )
 
Effect of exchange rate changes on cash 42 14,959
 
Net (decrease) increase in cash and cash
equivalents (19,488 ) 539,845
Cash and cash equivalents at beginning of
period 997,310 457,465
Cash and cash equivalents at end of period $ 977,822 $ 997,310
 
STAPLES, INC. AND SUBSIDIARIES
Segment Reporting
(Dollar Amounts in Thousands)
       
 
(Unaudited)
13 Weeks Ended Fiscal Year Ended
January 28, January 29, January 28, January 29,
2006 2005 2006 2005
 
Sales:
North American
Retail $ 2,568,674 $ 2,386,659 $ 9,037,513 $ 8,324,299
North American
Delivery 1,328,225 1,122,608 4,945,661 4,196,882
International
Operations 565,418 567,238 2,095,678 1,927,197
Total sales $ 4,462,317 $ 4,076,505 $ 16,078,852 $ 14,448,378
 
Business Unit
Income:
North American
Retail $ 288,537 $ 258,025 $ 816,512 $ 681,230
North American
Delivery 146,487 116,074 485,114 376,730
International
Operations 20,173 21,786 11,654 67,913
Total business
unit income $ 455,197 $ 395,885 $ 1,313,280 $ 1,125,873
Interest and other
expense, net 1,541 (99 ) 1,219 (10,301 )
Income before
income taxes $ 456,738 $ 395,786 $ 1,314,499 $ 1,115,572

Contact:

Staples, Inc.
Media Contact:
Paul Capelli, 508-253-8530
or
Owen Davis, 508-253-8468
or
Investor Contact:
Laurel Lefebvre, 508-253-4080
or
Katie Sullivan, 508-253-0879

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