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Staples l998 EPS Increases 33% to $0.53; Reports Strong Annual Revenue Growth of 24%; Fourth Quarter 10% Comps Lead Industry
WESTBOROUGH, Mass.--(BUSINESS WIRE)--March 4, l999--Staples Inc. (NASDAQ:SPLS) today announced diluted earnings per share of $0.53 for the fiscal year ended January 30, l999, a 33 percent increase compared with the $0.40 earned in the prior year.

In the fourth quarter l998, diluted earnings per share rose to $0.22, a 38 percent increase over the $0.16 earned in the fourth quarter of l997.

The earnings per share calculation reflects a three-for-two stock split effective January 28, l999, and excludes a one-time store relocation charge in the fourth quarter of l998, and merger-related charges in both l997 and l998. Historical data has also been restated to reflect the merger with Quill Corporation under the pooling of interests method of accounting.

Staples also announced that its board of directors has authorized the company to purchase up to $200 million of its common stock over the next 12 months. Repurchased common shares will be added to the company's treasury shares and will be used for employee benefit, stock options and other corporate programs.

Total sales for the year rose to $7.1 billion compared with $5.7 billion in the prior year, a 24 percent increase. Comparable sales in the 741 stores and delivery hubs that have been open for more than one year increased 11 percent for the year, the highest in the office superstore industry.

Total sales for the fourth quarter l998 rose to $2.1 billion, a 23 percent increase from the $1.7 billion in the comparable period last year. Comparable sales increased 10 percent for the quarter.

Net income for the full year increased to $238 million from $171 million in l997, a 39 percent increase year over year. Net income for the quarter increased to $101 million from $70 million in the fourth quarter l997, a 45 percent increase. Net income for the year is before both merger expenses and the charge for store relocations in l998, and net income for the fourth quarter is before the charge for store relocations.

"Our results were propelled by strong revenue growth across the company," said Thomas G. Stemberg, Staples' chairman and chief executive officer. "We continued to deliver industry leading financial performance, and, at the same time, we invested aggressively in new businesses, new markets, new customers and new channels of distribution."

During the year, the company continued to invest in businesses that will drive its future growth. It purchased Quill Corporation, a $600 million direct marketer of office supplies to small businesses. Since joining Staples in May l998, Quill's revenue growth rate has continued to accelerate through increased investments in prospecting. In addition, Quill will enter the European market during the first quarter 1999.

"We are very bullish on Quill," said Mr. Stemberg. "Revenues and profits exceeded plan, and I expect those improvements will continue in l999 as well. The management teams are working well together, and both Staples Direct and Quill are benefiting from their increasing collaborations. The combined expertise of our two catalog businesses, plus our experience in the European market, will allow us to launch Quill in Europe this quarter."

The company also continued to invest in its retail store base. It opened 174 new retail stores worldwide: 130 in the United States, 28 in Canada, 8 in the United Kingdom and 8 in Germany, and ended the year with 913 stores worldwide. The company expects to continue that pace in l999. To support the rapid growth of its retail network, the company opened its third U.S. distribution center in Rialto, Calif., and plans to break ground on its fourth retail distribution center in Terre Haute, Ind., in the spring l999.

As part of its program to increase the products and services for the small business customer, Staples introduced technology and copy centers into a growing number of its U.S. stores, increased its build-to-order computer program, introduced networking services in selected stores, and purchased Claricom, a privately held company that provides telecommunications products and services to small businesses. The purchase of Claricom is Staples' first significant entry into the market for services, and it holds significant potential to expand the company's relationships with small businesses.

Staples also launched staples.com, its e-commerce site that added a fourth way - in addition to retail stores, catalogs and by contract
-- for customers to shop with Staples. Several weeks after its official launch in November, the company announced an additional $10 million investment in its e-commerce business based on its early success.

Staples Inc. is a $7 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, pioneered the office superstore concept and today is the largest operator of office superstores in the world. The company has more than 37,000 employees serving the business customer through more than 900 office superstores, mail order catalogs, a contract business and an e-commerce site. More information is available on the company at http://www.staples.com.


                    STAPLES, INC. AND SUBSIDIARIES
                  Consolidated Statements of Income
           (Dollar Amounts in Thousands, Except Share Data)

                                           13 Weeks Ended
                                  January 30,            January 31,
                                      1999                 1998
                                  $          %          $         %

Sales                      $  2,077,103   100.00% $ 1,694,694  100.00%
Cost of goods sold
 and occupancy costs          1,538,569    74.07%   1,282,468   75.68%
                            -----------    ------  ----------  -------
    Gross profit                538,534    25.93%     412,226   24.32%

Operating and other
 expenses:
  Operating and selling         281,917    13.57%     225,652   13.32%
  Pre-opening                     2,241     0.11%       1,492    0.09%
  General and
   administrative                83,489     4.02%      64,648    3.81%
  Amortization of
   goodwill                         987     0.05%         952    0.06%
  Merger-related costs             --       0.00%        --      0.00%
  Store closing costs            49,706     2.39%        --      0.00%
  Interest and other
   expense, net                   2,409     0.12%       5,915    0.35%
                            -----------    ------  ----------  -------
    Total operating and
     other expenses             420,749    20.26%     298,659   17.62%
                            -----------    ------  ----------  -------

    Income before equity
     in loss of affiliates
     and income taxes           117,785     5.67%     113,567    6.70%
 Equity in gain/(loss)
  of affiliates                    --       0.00%        --      0.00%
                            -----------    ------  ----------  -------

   Income before income
     taxes                      117,785     5.67%     113,567    6.70%
Income tax expense               46,525     2.24%     40,231     2.37%
                            -----------    ------  ----------  -------

   Net income before
    minority interest            71,260     3.43%      73,336    4.33%
Minority interest                  --       0.00%          13    0.00%
                            -----------    ------  ----------  -------

   Net income              $     71,260     3.43%  $   73,349    4.33%
                            ===========    ======   =========   ======

Net income per common
 share                     $       0.15            $     0.17
                            ===========             =========

Pro forma:
 Historical net income                             $   73,349
 Provision for income
  taxes on previously
  untaxed earnings of
  pooled S-Corporation
  income                                                3,627
                                                    ---------
   Proforma net income                             $   69,722
                                                    =========
Pro forma net income per
 common share                                      $     0.16
                                                    =========
Number of shares used in
 computing net income
 per common share           473,489,642           458,507,952
                            ===========           ===========
EPS before merger
 reserves - pro forma      $       0.22            $     0.16
                            ===========             =========



                    STAPLES, INC. AND SUBSIDIARIES
                   Consolidated Statements of Income
           (Dollar Amounts in Thousands, Except Share Data)

                                         Fiscal Year Ended

                               January 30,   January 31,   February 1,
                                  1999         1998           1997


Sales                         $ 7,123,189  $ 5,732,145    $ 4,493,589
Cost of goods sold
 and occupancy costs            5,365,802    4,353,161      3,410,263
                              -----------  -----------    -----------
    Gross profit                1,757,387    1,378,984      1,083,326

Operating and other expenses:
 Operating and selling          1,023,848      833,046        651,634
 Pre-opening                       13,836        9,443          8,299
 General and administrative       301,627      225,587        175,704
 Amortization of goodwill           3,739        3,581          2,291
 Merger-related costs              41,000       29,665           --
 Store closure charge              49,706         --             --
 Interest and other
  expense, net                     17,370       21,955         22,962
                              -----------  -----------    -----------
    Total operating and
     other expenses             1,451,126    1,123,277        860,890
                              -----------  -----------    -----------

Income before equity in
 loss of affiliates
 and income taxes                 306,261      255,707        222,436
Equity in loss of affiliates         --         (5,953)       (11,073)
                              -----------  -----------    -----------

Income before income taxes        306,261      249,754        211,363
Income tax expense                121,026       81,924         66,621
                              -----------  -----------    -----------
    Net income before
     minority interest            185,235      167,830        144,742
  Minority interest                   135           84           --
                              -----------  -----------    -----------
    Net income                $   185,370  $   167,914    $   144,742
                              ===========  ===========    ===========

Basic earnings per
 common share
    Historical net income
      per common share        $      0.43  $      0.41    $      0.36
                              ===========  ===========    ===========

Diluted earnings per
 common share
    Historical net income
     per common share         $      0.41  $      0.39    $      0.35
                              ===========  ===========    ===========

Pro forma:
 Historical net income        $   185,370  $   167,914    $   144,742
 Provision for income
  taxes on previously
  untaxed earnings of
  pooled S-Corporation
  income                            1,814       14,786         15,329
                              -----------  -----------    -----------
  Pro forma net income        $   183,556  $   153,128    $   129,413
                              ===========  ===========    ===========

Basic earnings per
 common share
    Pro forma net income
     per common share         $      0.43  $      0.38    $      0.32
                              ===========  ===========    ===========

Diluted earnings per
 common share
    Pro forma net income
     per common share         $      0.41  $      0.36    $      0.31
                              ===========  ===========    ===========



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


                                           January 30,    January 31,
                                              1999           1998

ASSETS
Current Assets:
   Cash and cash equivalents             $   357,993    $   381,088
   Short-term investments                     17,428          5,902
   Merchandise inventories                 1,340,432      1,124,642
   Receivables, net                          221,836        203,143
   Deferred income taxes                      75,261         33,108
   Prepaid expenses and
    other current assets                      51,150         38,257
                                         -----------    -----------
     Total current assets                  2,064,100      1,786,140

Property and Equipment:
   Land and buildings                        231,378        150,947
   Leasehold improvements                    372,451        292,128
   Equipment                                 400,225        304,177
   Furniture and fixtures                    239,755        173,711
                                         -----------    -----------
     Total property and equipment          1,243,809        920,963
   Less accumulated depreciation
    and amortization                         403,520        310,701
                                         -----------    -----------
     Net property and equipment              840,289        610,262

Other Assets:
   Lease acquisition costs,
    net of amortization                       75,127         43,244
   Investments                                  --           16,450
   Goodwill, net of amortization             148,201        139,753
   Deferred income taxes                      28,735         15,451
   Other                                      22,814         27,562
                                         -----------    -----------
     Total other assets                      274,877        242,460
                                         -----------    -----------
                                         $ 3,179,266    $ 2,638,862
                                         ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable                      $   794,427    $   672,956
   Accrued expenses and other
    current liabilities                      438,311        266,023
   Debt maturing within one year              32,594         43,501
                                         -----------    -----------
     Total current liabilities             1,265,332        982,480

Long-Term Debt                               205,015        218,959
Other Long-Term Obligations                   52,033         42,803
Convertible Debentures                          --          300,000
Minority Interest                               --              135
Stockholders' Equity:
Preferred stock, $.01 par
    value-authorized 5,000,000 shares;
    no shares issued Common stock,
    $.0006 par value-authorized
    1,000,000,000 shares;
    issued 461,538,061 shares at
    January 30, 1999 and 278,159,308
    shares at January 31, 1998                   277            167

Additional paid-in capital                 1,043,194        593,883
Cumulative foreign currency
 translation adjustments                     (11,675)       (10,315)
Unrealized gain on investments                     7          1,056
Retained earnings                            633,321        510,040
Less: treasury stock at cost,
 352,948 shares at
January 30, 1999 and 59,149
 shares at January 31, 1998                   (8,238)          (346)
                                         -----------    -----------
         Total stockholders' equity        1,656,886      1,094,485
                                         -----------    -----------
                                         $ 3,179,266    $ 2,638,862
                                         ===========    ===========



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


                                           Fiscal Year Ended

                                  January 30,  January 31, February 1,
                                     1999         1998         1997

Operating Activities:
 Net income                     $   185,370  $   167,914  $   144,742
 Adjustments to reconcile
 net income to net cash
 provided by (used in)
 operating activities:
  Minority interest                    (135)         (84)        --
  Depreciation and amortization      99,207       90,714       61,497
  Expense from 401K and PARS
   stock contribution                12,794       10,409        2,715
  Equity in loss of affiliates         --          5,953       11,073
  Deferred income taxes
  (benefit)/expense                 (55,569)       3,877        3,137
Change in assets and
 liabilities, net of
 companies acquired using
 purchase accounting:
Increase in merchandise
 inventories                       (211,052)    (227,076)    (171,593)
Decrease (increase) in
 receivables                        (15,993)      17,569      (41,905)
Increase in prepaid expenses
 and other assets                    (9,973)      (5,026)      (7,026)
Increase in accounts payable,
 accrued expenses and other
 current liabilities                363,988      323,496      179,803
Increase in other long-term
 obligations                          9,597        5,074        6,303
                                -----------  -----------  -----------
                                    192,864      224,906       44,004
                                -----------  -----------  -----------
Net cash provided by
 operating activities               378,234      392,820      188,746

Investing Activities:
 Acquisition of property
  and equipment                    (322,308)    (190,659)    (212,007)
 Acquisition of businesses,
  net of cash acquired              (13,500)     (79,325)        --
 Proceeds from sales and
  maturities of short-term
  invesments                         10,338       13,618        8,800
 Purchase of short-term
  investments                       (22,913)      (4,500)      (9,595)
 Proceeds from sales and
  maturities of long-term
  investments                        18,995          265         --
 Purchase of long-term
  investments                        (2,545)      (5,714)     (10,036)
 Investment in affiliates              --         (3,788)     (18,629)
 Acquisition of lease rights        (37,182)      (2,717)      (5,534)
 Other                                4,115      (11,998)       2,657
                                -----------  -----------  -----------
 Net cash used in investing
  activities                       (365,000)    (284,818)    (244,344)

Financing Activities:
 Proceeds from sale of capital
  stock                              61,191       48,043       21,773
 Proceeds from borrowings           392,261      965,921    1,171,174
 Payments on borrowings            (417,323)    (830,018)  (1,120,670)
 Purchase of dissenting
  shareholder S-Corporation
  stock                             (48,102)        --           --
 Purchase of treasury stock          (7,892)        --           --
 Dividends to shareholders
  of acquired S-Corp                (15,904)     (25,175)     (24,908)
                                -----------  -----------  -----------
Net cash (used in) provided
 by financing activities            (35,769)     158,771       47,369

Effect of exchange rate
 changes on cash                       (560)      (2,720)         643

Net (decrease) increase
 in cash and cash equivalents       (23,095)     264,053       (7,586)
Cash and cash equivalents at
 beginning of period                381,088      117,035      124,621
                                -----------  -----------  -----------
Cash and cash equivalents
 at end of period               $   357,993  $   381,088  $   117,035
                                ===========  ===========  ===========



"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Staples, Inc.'s business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.
     CONTACT: Staples Inc.
              Media Contact
              Shannon LaPierre, 508/370-8468
              Manager, Media Relations
              or
              Investor Contact
              Diane Basile, 508/370-7963
              Director, Investor Relations