Staples, Inc. Reports Record Third Quarter Performance; Company Sales Increased 11 Percent; Earnings Per Share Rose 14 Percent; North American Retail Comparable Sales Increased Three Percent
Tuesday, November 15, 2005 7:00 am EST
Dateline:
FRAMINGHAM, Mass.
Public Company Information:
NASDAQ:
SPLS
"Our associates once again drove industry leading sales and profits"
FRAMINGHAM, Mass.--(BUSINESS WIRE)--Staples, Inc. (Nasdaq: SPLS) announced today the results for its third quarter ended October 29, 2005. Total company sales grew to $4.25 billion, an increase of 11 percent versus $3.83 billion for the same quarter of the prior year. Net income rose 14 percent year-over-year to $238 million, and earnings per share, on a diluted basis, increased 14 percent to $0.32, from the $0.28 achieved in the third quarter of 2004.
"Our associates once again drove industry leading sales and profits," said Ron Sargent, Staples' chairman and chief executive officer. "Our commitment to make it easy for our customers continues to fuel market share gains."
| Highlights for the third quarter include: |
| -- North American Retail sales were $2.45 billion, up nine |
| percent. Same store comparable sales increased three percent |
| year-over-year, with strong performance in copy center, |
| networking, digital cameras and accessories, portable |
| computers, and peripherals. |
| -- North American Delivery increased revenues by 18 percent to |
| $1.29 billion. |
| -- Sales in the company's International business rose four |
| percent, or five percent in local currency, but declined two |
| percent excluding benefits from acquisitions and the negative |
| impact of foreign currency exchange. |
| -- Total company operating income increased 16 basis points to |
| 8.8 percent of sales, with North American Retail and North |
| American Delivery both achieving record third quarter |
| performance with operating income rising to 10 percent of |
| sales. |
| -- Inventory turns increased 17 basis points to 5.66 times. |
| -- Staples opened 18 new stores in the US and 11 stores in |
| Canada. In Europe, Staples added a total of three new stores |
| with one opening in the UK, the Netherlands and Portugal. The |
| company now operates 1,748 stores worldwide. |
| -- The company generated $465 million in free cash flow during |
| the first three quarters of the year. |
Outlook
For the fourth quarter of 2005, Staples expects to achieve earnings per share growth in line with average analyst estimates. Staples expects to achieve approximately 10 percent sales growth for the total company. For North American Retail, the company expects a low single digit comparable sales increase. In the North American Delivery business, the company expects sales growth in the mid teens, and for the International business, Staples expects flat sales performance.
Looking ahead to 2006, Staples expects revenues to grow in the low double digits, and expects to achieve earnings per share growth in the range of 15 to 20 percent, including a 53rd week in fiscal 2006 and the adjustment for stock option expense in 2005 and 2006. The company will expense stock options beginning in the first quarter of 2006, and restate earnings for 2005 to reflect the impact of stock option expense, which is expected to reduce 2005 earnings per share by $0.06 to $0.07, on a diluted basis. Stock option expense is expected to impact earnings per share by $0.07 to $0.08, on a diluted basis, in 2006. As a result of expensing stock options, earnings per share for 2006 are expected to be in the range of $1.20 to $1.26, on a diluted basis.
About Staples
Staples, Inc. invented the office superstore concept in 1986 and today is the world's largest office products company. With 65,000 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 2004 sales of $14.4 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 1,750 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; 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 October 29, 2005, 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) |
||||||
| October 29, | ||||||
| 2005 | January 29, | |||||
| (Unaudited) | 2005 | |||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 770,270 | $ | 997,310 | ||
| Short-term investments | 558,858 | 472,231 | ||||
| Receivables, net | 568,430 | 485,126 | ||||
| Merchandise inventories, net | 1,708,701 | 1,602,530 | ||||
| Deferred income tax asset | 115,153 | 86,041 | ||||
| Prepaid expenses and other current assets | 132,994 | 138,374 | ||||
| Total current assets | 3,854,406 | 3,781,612 | ||||
| Property and equipment: | ||||||
| Land and buildings | 684,987 | 649,175 | ||||
| Leasehold improvements | 842,310 | 762,946 | ||||
| Equipment | 1,250,050 | 1,140,234 | ||||
| Furniture and fixtures | 646,360 | 597,293 | ||||
| Total property and equipment | 3,423,707 | 3,149,648 | ||||
| Less accumulated depreciation and | ||||||
| amortization | 1,762,144 | 1,548,774 | ||||
| Net property and equipment | 1,661,563 | 1,600,874 | ||||
| Lease acquisition costs, net of accumulated | ||||||
| amortization | 35,838 | 38,400 | ||||
| Intangible assets, net of accumulated | ||||||
| amortization | 232,263 | 222,520 | ||||
| Goodwill | 1,383,424 | 1,321,464 | ||||
| Other assets | 89,129 | 106,578 | ||||
| Total assets | $ | 7,256,623 | $ | 7,071,448 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 1,365,968 | $ | 1,241,433 | ||
| Accrued expenses and other current | ||||||
| liabilities | 947,223 | 954,184 | ||||
| Debt maturing within one year | 1,352 | 1,244 | ||||
| Total current liabilities | 2,314,543 | 2,196,861 | ||||
| Long-term debt | 526,455 | 557,927 | ||||
| Deferred income tax liability | 22,616 | 23,314 | ||||
| Other long-term obligations | 223,636 | 178,150 | ||||
| Minority interest | 4,288 | - | ||||
| 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 | ||||||
| 823,548,329 shares at October 29, 2005 and | ||||||
| 813,049,136 shares at January 29, 2005 | 494 | 488 | ||||
| Additional paid-in capital | 2,426,414 | 2,254,947 | ||||
| Cumulative foreign currency translation | ||||||
| adjustments | 76,039 | 114,427 | ||||
| Retained earnings | 3,239,188 | 2,818,163 | ||||
| Less: Treasury stock at cost - 92,315,397 | ||||||
| shares at October 29, 2005, and 68,547,587 | ||||||
| shares at January 29, 2005 | (1,577,050) | (1,072,829) | ||||
| Total stockholders' equity | 4,165,085 | 4,115,196 | ||||
| Total liabilities, minority interest and | ||||||
| stockholders' equity | $ | 7,256,623 | $ | 7,071,448 | ||
| STAPLES, INC. AND SUBSIDIARIES | ||||||||||||
|
Consolidated Statements of Income |
||||||||||||
| (Dollar Amounts in Thousands, Except Per Share Data) | ||||||||||||
| (Unaudited) | ||||||||||||
| 13 Weeks Ended | 39 Weeks Ended | |||||||||||
| October 29, | October 30, | October 29, | October 30, | |||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||
| Sales | $ | 4,245,519 | $ | 3,830,466 | $ | 11,616,535 | $ | 10,371,873 | ||||
| Cost of goods sold | ||||||||||||
| and occupancy | ||||||||||||
| costs | 3,024,061 | 2,734,250 | 8,342,472 | 7,469,347 | ||||||||
| Gross profit | 1,221,458 | 1,096,216 | 3,274,063 | 2,902,526 | ||||||||
| Operating and other | ||||||||||||
| expenses: | ||||||||||||
| Operating and | ||||||||||||
| selling | 687,494 | 608,426 | 1,934,128 | 1,729,657 | ||||||||
| General and | ||||||||||||
| administrative | 156,262 | 153,748 | 471,831 | 436,734 | ||||||||
| Amortization of | ||||||||||||
| intangibles | 3,178 | 2,297 | 10,021 | 6,147 | ||||||||
| Total operating | ||||||||||||
| expenses | 846,934 | 764,471 | 2,415,980 | 2,172,538 | ||||||||
| Operating income | 374,524 | 331,745 | 858,083 | 729,988 | ||||||||
| Other income | ||||||||||||
| (expense): | ||||||||||||
| Interest income | 15,928 | 8,811 | 40,719 | 19,206 | ||||||||
| Interest expense | (14,916) | (10,777) | (39,955) | (27,977) | ||||||||
| Miscellaneous | ||||||||||||
| expense | (927) | (856) | (1,086) | (1,431) | ||||||||
| Income before | ||||||||||||
| income taxes | ||||||||||||
| and minority | ||||||||||||
| interest | 374,609 | 328,923 | 857,761 | 719,786 | ||||||||
| Income tax expense | 136,732 | 120,057 | 313,083 | 262,722 | ||||||||
| Income before | ||||||||||||
| minority | ||||||||||||
| interest | 237,877 | 208,866 | 544,678 | 457,064 | ||||||||
| Minority interest | 53 | - | 251 | - | ||||||||
| Net income | $ | 237,824 | $ | 208,866 | $ | 544,427 | $ | 457,064 | ||||
| Earnings Per Share: | ||||||||||||
| Basic earnings | ||||||||||||
| per common | ||||||||||||
| share | $ | 0.33 | $ | 0.28 | $ | 0.74 | $ | 0.62 | ||||
| Diluted | ||||||||||||
| earnings per | ||||||||||||
| common share | $ | 0.32 | $ | 0.28 | $ | 0.73 | $ | 0.60 | ||||
| Dividends declared | ||||||||||||
| per common share | $ | - | $ | - | $ | 0.17 | $ | 0.13 | ||||
| STAPLES, INC. AND SUBSIDIARIES | ||||||
| Consolidated Statements of Cash Flows | ||||||
| (Dollar Amounts in Thousands) | ||||||
| (Unaudited) | ||||||
| 39 Weeks Ended | ||||||
| October 29, | October 30, | |||||
| 2005 | 2004 | |||||
| Operating Activities: | ||||||
| Net income | $ | 544,427 | $ | 457,064 | ||
| Adjustments to reconcile net income to net | ||||||
| cash provided by operating activities: | ||||||
| Depreciation and amortization | 223,429 | 206,381 | ||||
| Deferred tax (expense) benefit | (24,738) | 4,841 | ||||
| Other | 40,600 | 39,437 | ||||
| Changes in assets and liabilities: | ||||||
| Increase in receivables | (73,434) | (49,656) | ||||
| Increase in merchandise inventories | (106,333) | (103,004) | ||||
| Increase in prepaid expenses and other | ||||||
| assets | (5,323) | (9,876) | ||||
| Increase in accounts payable | 120,804 | 242,056 | ||||
| Increase in accrued expenses and other | ||||||
| liabilities | 18,381 | 39,282 | ||||
| Increase in other long-term obligations | 16,082 | 5,087 | ||||
| Net cash provided by operating activities | 753,895 | 831,612 | ||||
| Investing Activities: | ||||||
| Acquisition of property and equipment | (289,338) | (200,662) | ||||
| Acquisition of businesses, net of cash | ||||||
| acquired | (40,560) | (86,390) | ||||
| Increase in investment, net of cash acquired | (16,636) | (9,650) | ||||
| Purchase of short-term investments | (6,037,124) | (8,263,263) | ||||
| Proceeds from the sale of short-term | ||||||
| investments | 5,950,498 | 8,668,722 | ||||
| Net cash (used in) provided by investing | ||||||
| activities | (433,160) | 108,757 | ||||
| Financing Activities: | ||||||
| Proceeds from the exercise of stock options | ||||||
| and the sale of stock under employee stock | ||||||
| purchase plans | 102,929 | 148,031 | ||||
| Payments on borrowings | (18,850) | (3,216) | ||||
| Cash dividends paid | (123,402) | (99,527) | ||||
| Purchase of treasury stock, net | (504,221) | (344,711) | ||||
| Net cash used in financing activities | (543,544) | (299,423) | ||||
| Effect of exchange rate changes on cash and | ||||||
| cash equivalents | (4,231) | 15,081 | ||||
| Net (decrease) increase in cash and cash | ||||||
| equivalents | (227,040) | 656,027 | ||||
| Cash and cash equivalents at beginning of | ||||||
| period | 997,310 | 457,465 | ||||
| Cash and cash equivalents at end of period | $ | 770,270 | $ | 1,113,492 | ||
| STAPLES, INC. AND SUBSIDIARIES | ||||||||||||||||
| Segment Reporting | ||||||||||||||||
| (Dollar Amounts in Thousands) | ||||||||||||||||
| (Unaudited) |
(Unaudited) |
|||||||||||||||
|
13 Weeks Ended |
39 Weeks Ended |
|||||||||||||||
| October 29, | October 30, | October 29, | October 30, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| Sales: | ||||||||||||||||
| North American | ||||||||||||||||
| Retail | $ | 2,450,926 | $ | 2,254,749 | $ | 6,468,839 | $ | 5,937,640 | ||||||||
| North American | ||||||||||||||||
| Delivery | 1,285,905 | 1,086,820 | 3,617,436 | 3,074,274 | ||||||||||||
| International | ||||||||||||||||
| Operations | 508,688 | 488,897 | 1,530,260 | 1,359,959 | ||||||||||||
| Total sales | $ | 4,245,519 | $ | 3,830,466 | $ | 11,616,535 | $ | 10,371,873 | ||||||||
| Business Unit | ||||||||||||||||
| Income: | ||||||||||||||||
| North American | ||||||||||||||||
| Retail | $ | 245,265 | $ | 220,883 | $ | 527,975 | $ | 423,205 | ||||||||
| North American | ||||||||||||||||
| Delivery | 128,669 | 99,270 | 338,627 | 260,656 | ||||||||||||
| International | ||||||||||||||||
| Operations | 590 | 11,592 | (8,519) | 46,127 | ||||||||||||
| Total business | ||||||||||||||||
| unit income | $ | 374,524 | $ | 331,745 | $ | 858,083 | $ | 729,988 | ||||||||
| Interest and other | ||||||||||||||||
| expense, net | 85 | (2,822) | (322) | (10,202) | ||||||||||||
| Income before | ||||||||||||||||
| income taxes | $ | 374,609 | $ | 328,923 | $ | 857,761 | $ | 719,786 | ||||||||