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Staples Reports 35 Percent Increase in Third Quarter Earnings Per Share

Thursday, November 12, 1998 7:00 am EST

Dateline:

WESTBOROUGH, Mass.

Public Company Information:

NASDAQ:
SPLS
"The continued strength in our revenue growth is the result of our customer service-oriented associates who are constantly looking for ways to cut the costs and hassle of running the offices of small businesses."

WESTBOROUGH, Mass.--(BUSINESS WIRE)--....Net Income Jumps 33 Percent....

....Total Revenue Up 22 Percent Over Prior Year Period....

Staples Inc. (NASDAQ:SPLS), which pioneered the office products superstore industry and is the largest operator of office superstores in the world, today announced net income of $69.2 million or $0.23 per common share on a diluted basis, for the third quarter which ended Oct. 31, 1998, compared to $52.0 million, or $0.17 per common share on a diluted basis, reported a year ago.

For the first nine months of the fiscal year, net income was $137.1 million, or $.46 per common share on a diluted basis, compared to $101.6 million, or $.36 per common share on a diluted basis, before merger related charges in both periods.

Total sales for the quarter rose 22 percent to $1.9 billion from $1.6 billion reported for the same period last year. For the first nine months of the fiscal year, sales rose 25 percent to $5.0 billion from $4.0 billion in the same period last year. Comparable sales in the 711 stores and delivery hubs that have been open for more than one year increased 12 percent for the quarter and for the nine month period.

"We are extremely pleased to have delivered another strong quarter," said Thomas G. Stemberg, Staples chairman and chief executive officer. "The continued strength in our revenue growth is the result of our customer service-oriented associates who are constantly looking for ways to cut the costs and hassle of running the offices of small businesses."

Highlights of the quarter:

  • 46 stores were opened and 1 store was closed including 37 in the U.S., 5 in Canada, 3 in the United Kingdom and 1 in Germany. For the nine month period, 137 stores were opened and 1 was closed;
  • The acquisition of the office and manufactured products of Ivan Allen Inc., a $60 million in revenue contract stationer located in Atlanta. The acquisition was consummated last week and will give Staples a significant presence in the Southeast market.
  • The addition of former U.S. Sen. George Mitchell, (D-Maine) to the Board of Directors. Mitchell's international experience will benefit Staples as it expands its operations worldwide.
  • The announcement of a unique partnership with CompuCom Systems Inc. of Dallas to offer small business technology and computer networking products and services to small business customers in select Staples stores in the Northeast starting in December.
  • The naming of Staples as a component of the Standard & Poors 500 Index.

The company today also announced that its Board of Directors has declared a 3-for-2 split of its common stock in the form of a 50 percent stock dividend, subject to shareholder approval of an increase in Staples' authorized number of common shares.

Staples shareholders will vote on the increase in additional capital at a special meeting scheduled for January 21, 1999. If the increase is approved, the dividend will be distributed on January 28, 1999, to shareholders of record on the close of business on January 18, 1999.

Staples shareholders also will be asked at the special meeting to approve a change in compensation for members of the Board of Directors to an all equity-based plan.

"This change to our Board of Directors compensation plan will more closely align the interests of the board members to the interests of our shareholders," said John J. Mahoney, executive vice president and chief administrative officer. "It will also help Staples attract the type of directors it needs to continue to move the company forward."

In the fiscal 1998 year-to-date periods, merger related charges were recorded for the acquisition of Quill Corporation. In the fiscal 1997 year-to-date periods, merger related charges were recorded for the attempted merger with Office Depot, Inc. Historical data has been restated to reflect the merger with Quill Corporation under the pooling of interests method of accounting.

Certain information presented within this news release may constitute forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, which are discussed in our most recent 10-Q and the prospectus for the recent secondary offering of common stock and other documents on file with the Securities and Exchange Commission.

Staples Inc. is a $5 billion retailer of office supplies, furniture and technology to consumers and businesses from home-based businesses to Fortune 50 companies in the United States, Canada, the United Kingdom and Germany. Staples, headquartered outside Boston, invented the office superstore concept and today is the largest operator of office superstores in the world. The company has more than 37,000 associates serving the business customer through 878 office superstores, mail order catalogs and a contract business. More information is available on the company at http://www.staples.com.

STAPLES, INC. AND SUBSIDIARIES

Supplemental Consolidated Statements of Income

(Dollar Amounts in Thousands, Except Share Data)
     
(Unaudited) (Unaudited)
13 Weeks Ended 39 Weeks Ended
 
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
 
Sales $ 1,899,770 $ 1,552,393 $ 5,046,086 $ 4,037,453
Cost of goods sold
and occupancy
costs 1,423,857 1,176,922 3,827,233 3,070,695
Gross profit 475,913 375,471 1,218,853 966,758
 
Operating expenses:
Operating and
selling 272,314 227,531 741,931 607,393
Pre-opening 4,011 2,773 11,595 7,951
 
General and
administrative 79,958 58,734 218,138 160,939
 
Amortization of
goodwill 901 1,008 2,752 2,629
 
Merger-related and
integration costs -- --

41,000

 

29,665
 
Total operating
expenses 357,184 290,046 1,015,416 808,577
 
Operating income 118,729 85,425 203,437 158,181
Interest and other
expense, net (4,485 ) (6,212 ) (15,099 ) (16,040 )
 
Income before
equity in loss of
affiliates
and income taxes 114,244 79,213 188,338 142,141
Equity in gain/
(loss) of
affiliates -- -- -- (5,953 )
 
Income before
income taxes 114,244 79,213 188,338 136,188
Income tax expense 45,171 27,198 74,501 41,693
 
Net income before
minority interest 69,073 52,015 113,837 94,495
Minority interest 113 15 273 71
 
Net income $ 69,186 $ 52,030 $ 114,110 $ 94,566
 
Historical net
income
per common share $ 0.24 $ 0.19 $ 0.40 $ 0.35
 
Historical net
income per
common share
assuming dilution $ 0.23 $ 0.18 $ 0.39 $ 0.34
 
Pro forma:
Historical net
income

 

 

$

52,030

$

114,110

$94,566

 
Provision for
income taxes on
previously untaxed earnings
of pooled S-Corporation
income

 

3,428

1,814

11,159

 
Pro forma net
income

 

 

$

48,602

 

$

112,296

$83,407

 
Pro forma net
income
per common share

 

 

$

0.18

$

0.40

$0.31

 
Pro forma net
income
per common share
assuming dilution

 

 

$

0.17

$

0.38

$0.30

 
Number of shares
used in computing
historical and
pro forma net
income
per common share 284,122,452 272,820,608 282,037,821 270,674,099
 
Number of shares
used in computing
historical and pro
forma net income
per common share
assuming dilution 313,178,753 301,567,837 310,796,127 279,218,490
 

STAPLES, INC. AND SUBSIDIARIES

Supplemental Consolidated Balance Sheets

(Dollar Amounts in Thousands, Except Share Data)

         
October 31,
1998 January 31,
(Unaudited) 1998
ASSETS
Current Assets:
Cash and cash
equivalents $ 193,645 381,088
Short-term
investments 1,459 5,902
Merchandise
inventories 1,303,329 1,124,642
Receivables, net 270,421 203,143
Prepaid expenses
and other current
assets 96,079 71,365
Total current assets 1,864,933 1,786,140
 
Property and Equipment:
Land and buildings 215,904 150,947
Leasehold improvements 349,409 292,128
Equipment 371,125 304,177
Furniture and fixtures 219,972 173,711
Total property and
equipment 1,156,410 920,963
Less accumulated
depreciation and
amortization 379,512 310,701
Net property and
equipment 776,898 610,262
 
Other Assets:
Lease acquisition costs,
net of amortization 77,363 43,244
Investments -- 16,450
Goodwill, net of
amortization 134,917 139,753
Other 40,566 43,013
Total other assets 252,846 242,460
$ 2,894,677 $ 2,638,862
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 726,537 $ 672,956
Accrued expenses and other
current liabilities 395,744 266,023
Debt maturing within one year 3,420 43,501
Total current liabilities 1,125,701 982,480
 
Long-Term Debt 231,925 218,959
Other Long-Term Obligations 49,403 42,938
Convertible Debentures 299,835 300,000
Stockholders' Equity:
Preferred stock, $.01 par
value-authorized 5,000,000
shares; no shares issued
Common stock, $.0006 par
value-authorized 500,000,000
shares; issued 285,573,929
shares at October 31, 1998
and 278,159,308 shares at
January 31, 1998 172 167
Additional paid-in capital 647,420 593,883
Cumulative foreign currency
translation adjustments (13,672 ) (10,315 )
Unrealized gain/(loss) on
short-term investments 11 1,056
Retained earnings 562,120 510,040
Less: treasury stock, at cost,
352,948 shares at
October 31, 1998
and 59,149 shares
at January 31, 1998 (8,238 ) (346 )
Total stockholders' equity 1,187,813 1,094,485
$ 2,894,677 $ 2,638,862
 

STAPLES, INC. AND SUBSIDIARIES

Supplemental Consolidated Statements of Cash Flows

(Dollar Amounts in Thousands)
         
(Unaudited)
39 Weeks Ended
 
October 31, November 1,
1998 1997
Operating Activities:
Net income $ 114,110 $ 94,566
Adjustments to reconcile net
income to net cash provided by/
(used in) operating activities:
 
Minority interest (273 ) (66 )
Depreciation and amortization 74,597 69,272
Equity in loss of affiliates -- 5,953
Net decrease in
deferred tax assets (23,388 ) (8,025 )
(Increase)/decrease in assets:
Merchandise inventories (177,353 ) (179,673 )
Receivables (74,394 ) (52,970 )
 
Prepaid expenses and other assets 4,501 (3,405 )
 
Increase in accounts payable, accrued
expenses and other current liabilities 191,366 260,695
Increase in other
long-term obligations 7,267 4,992
2,323 96,773
Net cash (used in)/ provided by operating
activities 116,433 191,339
 
Investing Activities:
Acquisition of property and equipment (239,055 ) (141,983 )
Proceeds from sales and maturities
of short-term investments 11,356 19,769
Purchase of short-term investments (6,899 ) (7,743 )
 
Proceeds from sales
and maturities of long-term investments 18,995 --
 
Purchase of long-term investments (2,545 ) --
Acquisition of
businesses, net of cash acquired -- (77,808 )
Acquisition of lease rights (37,705 ) (2,533 )
Other 2,994 5,093
Net cash used in
investing activities (252,859 ) (205,205 )
 
Financing Activities:
Proceeds from sale
of capital stock 48,348 28,241
Proceeds from borrowings 26,171 813,408
 
Payments on borrowings (53,598 ) (675,534 )
Purchase and
retirement of acquired
S-Corporation stock (48,101 ) --
Dividends to shareholders
of acquired S-Corporation (15,904 ) (19,703 )
Other (8,057 ) --
 
Net cash (used in)
/provided by financing activities (51,141 ) 146,412
Effect of exchange rate changes on cash 124 (2,083 )
 
Net (decrease)/
increase in cash and cash equivalents (187,443 ) 130,463
Cash and cash
equivalents at beginning of period 381,088 117,035
Cash and cash
equivalents at end of period $ 193,645 $ 247,498

Contact:

Media Contact:
Staples Inc.
Dan Kaferle
(508) 370-8635
dan.kaferle@staples.com
or
Investor Contact:
Staples Inc.
Catherine Woods
(508) 424-7342
catherine.woods@staples.com

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