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Staples, Inc. Reports Strong Fourth Quarter Earnings; New CEO Ron Sargent Outlines Company Program to Drive Shareholder Value
FRAMINGHAM, Mass., Mar 5, 2002 (BUSINESS WIRE) -- Staples, Inc. (Nasdaq:SPLS) today reported net income of $94 million, or $0.20 per share on a diluted basis for the fourth quarter. Excluding special charges, net income for the quarter was $136 million, or $0.29 per share, a 45 percent earnings per share increase compared with the same period last year.

                               13 Weeks Ended        14 Weeks Ended
                              February 2, 2002      February 3, 2001
Net income (loss)
 (in thousands):
As reported (GAAP)                $ 93,798             $(111,675)
Adjustments (Net of
 Applicable Taxes):
   Inventory writedown for
    store closures (included
    in Cost of goods sold)           4,551                    --
   Store closure charge             30,807                    --
   Asset impairment and
    other charges                    6,591               205,750
As adjusted                       $135,747             $  94,075
                               13 Weeks Ended         14 Weeks Ended
                              February 2, 2002       February 3, 2001
Diluted earnings (loss) per share:
As reported (GAAP) - Staples,
 Inc. Stock                        $  0.20              $     --
As reported (GAAP) - Staples RD
 Stock                                  --                 (0.23)
Adjustments (Net of Applicable
 Taxes):
   Inventory writedown for store
    closures (included in Cost of
    goods sold)                       0.01                    --
   Store closure charge               0.07                    --
   Asset impairment and other
    charges                           0.01                  0.44
   Adjustment for conversion of
    Staples.com stock                   --                 (0.01)
As adjusted                       $   0.29              $   0.20

Fourth quarter sales of $2.9 billion decreased six percent compared to the $3.1 billion reported for the same period last year. Adjusting for the extra week in last year's fourth quarter, sales for the quarter increased one percent. Overall comparable sales for the quarter declined four percent, with retail comparable sales down five percent.

For the full year, revenues were $10.7 billion, up three percent adjusted for the extra week included in last year's fourth quarter. Full year total company comparable sales declined two percent and decreased four percent for retail only. Net income for the year excluding special charges was $307 million or $0.66 per share, an increase of 18% compared to earnings per share for the prior year, excluding special charges.

                               52 Weeks Ended        53 Weeks Ended
                              February 2, 2002      February 3, 2001
Net income (in thousands):
As reported (GAAP)                $264,970              $ 59,712
Adjustments (Net of Applicable
 Taxes):
   Inventory writedown for store
    closures (included in Cost of
    goods sold)                      4,551                    --
   Store closure charge (credit)    30,807                (4,278)
   Asset impairment and other
    charges                          6,591               205,750
As adjusted                       $306,919              $261,184
                               52 Weeks Ended        53 Weeks Ended
                              February 2, 2002      February 3, 2001
Diluted earnings per share:
As reported (GAAP) - Staples,
 Inc. Stock                       $   0.40              $     --
As reported (GAAP) - Staples RD
 Stock                                0.17                  0.15
Adjustments (Net of Applicable
 Taxes):
   Inventory writedown for store
    closures (included in Cost of
    goods sold)                       0.01                    --
   Store closure charge (credit)      0.07                 (0.01)
   Asset impairment and other
    charges                           0.01                  0.44
   Adjustment for conversion of
    Staples.com stock                   --                 (0.02)
As adjusted                   $   0.66              $   0.56

"I am pleased to report that Staples fourth quarter earnings increased and exceeded expectations," said Staples new Chief Executive Officer Ronald L. Sargent. "We are already seeing an improvement in results from strategic initiatives we launched in late 2001."

Back to Brighton -- Back to Basics

Today, Sargent announced Staples' comprehensive three part business improvement plan. Named after the company's first store in Brighton, Mass., Back to Brighton is a multi-faceted program which positions the company for long-term profitable growth, aims to increase profit margins to historical levels and improve asset utilization.

A key initiative driving profitable sales growth in the North American Retail business is the new Dover store format. Initial results of this store format are strong. The company plans to remodel 125 stores this year and all new stores will be the Dover format.

The second element is for improving profit margins and is expected to yield $200 million in cost savings. The company expects to achieve a significant portion of this benefit in 2002. This initiative is designed to increase more profitable sales to the company's small business customers. Examples include fine-tuning the product mix to focus on the needs of small business and expanding the private label products program.

The third component of Back to Brighton is improving asset utilization. Staples plans to reduce its prototype to 20,000 square feet, decreasing square footage growth without sacrificing convenience as well as benefiting from a lower investment in fixtures and inventory.

"Back to Brighton provides a tremendous opportunity to drive improvements in every area of Staples' business," Sargent said. "Our goal is to drive our returns to exceed our cost of capital and increase shareholder value."

Staples North American Retail

In the North American Retail business, sales for the quarter were $1.9 billion, down seven percent versus a year ago. On a 52 week basis, sales for the quarter were even with last year. Continuing a trend of solid improvement resulting from Back to Brighton initiatives, business unit income excluding special charges, increased eight percent versus last year to $149 million. During the fourth quarter, Staples opened 11 new stores in North America, with seven in the United States and four in Canada and announced plans to close 31 under-performing stores in the United States. In 2002, the company plans to open 75 new stores in the United States and 20 in Canada.

Staples North American Delivery

Staples' North American Delivery business, including Staples Contract, Quill, and Staples Business Delivery (the recently renamed combination of Staples.com and Staples' catalog businesses), reported fourth quarter sales of $765 million, down two percent versus the fourth quarter of last year. On a 52 week basis, sales for the quarter rose six percent. Business unit income was $66 million, an increase of 76 percent versus the fourth quarter of 2000. Staples added 2,300 new Contract accounts in Q4, totaling 7,800 new accounts in 2001 while customer retention rates continue to increase. Staples Business Delivery remains the fastest growing segment and is showing dramatic improvement in operating margins. Quill's solid performance resulted in sales growth of seven percent on a 52 week basis and continues to be the most profitable segment in Staples North American Delivery.

Staples European Business

Staples' European business revenues were $236 million, up five percent, or a thirteen percent increase adjusted for the extra week, versus the fourth quarter of last year. Comparable sales growth was eight percent and business unit income increased 350 percent to $9.5 million versus the fourth quarter of last year. The European business was profitable for the quarter and the European retail business was profitable for the year. In 2002, Staples plans to open approximately 20 stores in Europe and enter Belgium in the second half of 2002.

Outlook for 2002

Commenting on the outlook for fiscal year 2002, Sargent stated, "Improvements achieved in operating margins will allow us to invest in new ideas for future growth. We are confident that the plans we have in place have positioned Staples for continued industry-leading profitable growth without depending on an economic recovery. As a result, we are increasing our expectations for earnings per share to be in the range of $0.76 to $0.80 for the year."

Staples will host a live Internet broadcast of its fourth quarter and 2001 year end earnings conference call today at 8:00 a.m. (Eastern). Individuals may access the broadcast from Staples' Web site directly at http://investor.staples.com. A replay of the quarterly earnings conference call will be available at http://investor.staples.com from 11:30 a.m. (Eastern) on March 5, through midnight on Tuesday, March 12.

About Staples

Staples, Inc. is an $11 billion retailer of office supplies, business services, furniture and technology to consumers and businesses from home-based businesses to Fortune 500 companies in the United States, Canada, the United Kingdom, Germany, the Netherlands and Portugal. Headquartered outside Boston, Staples invented the office superstore concept and today is the largest operator of office superstores in the world. The company has approximately 53,000 associates serving customers through more than 1,400 office superstores, mail order catalogs, e-commerce and a contract business. More information about the company is available at http://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 various important factors including risks related to Staples' ability to compete in its highly competitive market, Staples' ability to continue to successfully open new stores, Staples' quarterly operating results being subject to significant fluctuation, Staples' stock price fluctuating based on the expectations of professional securities analysts, the strain on operations due to Staples' rapid growth which can affect operating results, the ability of Staples' foreign operations and Staples.com to become profitable and the ability of Staples to obtain adequate future financing. Additional information concerning these factors is contained in Staples' Quarterly Report on Form 10-Q dated December 11, 2001, which is on file with the Securities and Exchange Commission.

                    STAPLES, INC. AND SUBSIDIARIES
                   Consolidated Statements of Income
         (Dollar Amounts in Thousands, Except Per Share Data)
                   13 Weeks     14 Weeks     52 Weeks      53 Weeks
                     Ended        Ended        Ended         Ended
                  February 2,  February 3,  February 2,   February 3,
                     2002         2001         2002          2001
Sales             $ 2,929,207  $ 3,114,819  $10,744,373   $10,673,671
Cost of goods sold
 and occupancy
 costs              2,212,188    2,370,908    8,173,880     8,097,166
 Gross profit         717,019      743,911    2,570,493     2,576,505
Operating
 expenses:
 Operating and
  selling             412,958      455,354    1,651,846     1,643,162
 Pre-opening            1,293        2,705       13,685        22,297
 General and
  administrative       84,009      110,142      379,505       409,575
 Amortization of
  goodwill              1,646        2,912        6,584        13,628
 Store closure
  charge (credit)      50,092         --         50,092        (7,250)
 Asset impairment
  and other
  charges              10,717      205,750       10,717       205,750
 Interest and
  other expense,
  net                   3,787       13,349       27,219        45,158
 Total operating
  and other
  expenses            564,502      790,212    2,139,648     2,332,320
 Income (loss)
  before income
  taxes               152,517      (46,301)     430,845       244,185
Income tax expense     58,719       65,374      165,875       184,473
 Net income
 (loss)           $    93,798  $  (111,675) $   264,970   $    59,712
 Net income (loss)
  attributed to:
  Staples, Inc.
   Stock          $    93,798  $      --    $   185,110   $      --
  Staples RD Stock       --       (106,422)      79,740        71,197
  Staples.com
   Stock                 --         (5,253)         120       (11,485)
                  $    93,798  $  (111,675) $   264,970   $    59,712
 Basic earnings
  (loss) per
  common share:
  Staples, Inc.
   Stock          $      0.20  $      --    $      0.40   $      --
  Staples RD
   Stock          $      --    $     (0.23) $      0.18   $      0.16
  Staples.com
   Stock          $      --    $     (0.41) $      0.01   $     (0.84)
 Diluted earnings
  (loss) per
  common share:
  Staples, Inc.
   Stock          $      0.20  $      --    $      0.40   $      --
  Staples RD
   Stock          $      --    $     (0.23) $      0.17   $      0.15
  Staples.com
   Stock          $      --    $     (0.41) $      0.01   $     (0.84)
 Number of shares
  used in
  computing basic
  earnings (loss)
  per common
  share:
  Staples, Inc.
   Stock              460,859         --        460,362          --
  Staples RD Stock       --        453,128      455,399       454,490
  Staples.com
   Stock                 --         12,946        7,980        13,665
 Number of shares
  used in
  computing
  diluted
  earnings (loss)
  per common
  share:
  Staples, Inc.
   Stock              467,475         --        466,491          --
  Staples RD Stock       --        453,128      461,379       460,791
  Staples.com
   Stock                 --         12,946        9,819        13,665
                    STAPLES, INC. AND SUBSIDIARIES
                      Consolidated Balance Sheets
           (Dollar Amounts in Thousands, Except Share Data)
                                            February 2,   February 3,
                                               2002          2001
ASSETS
Current Assets:
 Cash and cash equivalents                  $   394,824   $   263,560
 Merchandise inventories                      1,459,792     1,639,698
 Receivables, net                               338,581       297,916
 Deferred income taxes                          117,560        43,955
 Prepaid expenses and other current assets       92,070       110,982
  Total current assets                        2,402,827     2,356,111
Property and Equipment:
 Land and buildings                             433,569       400,971
 Leasehold improvements                         552,250       519,681
 Equipment                                      820,053       692,783
 Furniture and fixtures                         406,565       352,712
   Total property and equipment               2,212,437     1,966,147
 Less accumulated depreciation and
  amortization                                  853,685       665,622
   Net property and equipment                 1,358,752     1,300,525
Other Assets:
 Lease acquisition costs, net of
  amortization                                   54,557        58,596
 Goodwill, net of amortization                  223,718       238,536
 Other                                           53,181        30,155
   Total other assets                           331,456       327,287
                                            $ 4,093,035   $ 3,983,923
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable                         $   935,442   $   983,851
   Accrued expenses and other current
    liabilities                                 655,274       542,923
   Debt maturing within one year                  4,983       184,505
     Total current liabilities                1,595,699     1,711,279
Long-Term Debt                                  350,225       441,257
Deferred Tax Liability                            6,738         8,916
Other Long-Term Obligations                      86,199        73,047
Stockholders' Equity:
 Preferred stock, $.01 par
  value-authorized 5,000,000 shares;
  no shares issued                                   --            --
 Common stock:
  Staples, Inc. Stock, $.0006 par
   value-authorized 2,100,000,000 shares;
   issued 491,564,105 shares at
   February 2, 2002                                 295            --
  Staples RD Stock, $.0006 par
   value-authorized 1,500,000,000 shares;
   issued 477,111,602 shares at
   February 3, 2001                                  --           285
  Staples.com Stock, $.0006 par
   value-authorized 600,000,000 shares;
   issued 14,105,821 shares at
   February 3, 2001                                  --             8
 Additional paid-in capital                   1,364,355     1,285,719
 Cumulative foreign currency translation
  adjustments                                   (27,129)      (14,354)
 Retained earnings                            1,272,991     1,008,021
 Less: treasury stock at cost, 27,569,880
  shares at February 2, 2002 and
  24,743,420 shares at February 3, 2001        (556,338)     (530,255)
       Total stockholders' equity             2,054,174     1,749,424
                                            $ 4,093,035   $ 3,983,923
                    STAPLES, INC. AND SUBSIDIARIES
                 Consolidated Statements of Cash Flows
                     (Dollar Amounts in Thousands)
                                               Fiscal Year Ended
                                            February 2,   February 3,
                                               2002          2001
Operating Activities:
Net income                                  $   264,970   $    59,712
Adjustments to reconcile net income to
 net cash provided by operating
 activities:
Depreciation and amortization                   248,965       223,510
Asset impairment and other charges               10,717       205,750
Store closure charge (credit)                    50,092        (7,250)
Deferred income taxes expense (benefit)         (80,370)       20,733
Other                                            19,278        19,304
Change in assets and liabilities, net of
 companies acquired/divested using
 purchase accounting:
Decrease (Increase) in merchandise
 inventories                                    148,687       (50,380)
Decrease (Increase) in receivables                1,855       (40,650)
Retained securitized accounts receivable        (86,109)      109,301
Increase in prepaid expenses and other
 assets                                            (684)      (19,017)
Increase in accounts payable, accrued
   expenses and other current liabilities        94,438       158,058
Increase in other long-term obligations          12,960        12,627
                                                419,829       631,986
Net cash provided by operating activities       684,799       691,698
Investing Activities:
Acquisition of property and equipment          (340,118)     (450,217)
Proceeds from sales and maturities of
 short-term investments                          25,535            --
Proceeds from sales and maturities of
 long-term investments                            1,654         9,156
Purchase of long-term investments                  (250)      (59,147)
Acquisition of lease rights                      (2,568)         (216)
Net cash used in investing activities          (315,747)     (500,424)
Financing Activities:
Proceeds from sale of capital stock              53,549        54,207
Proceeds from borrowings                        522,110     2,876,615
Payments on borrowings                         (800,194)   (2,753,733)
Termination of interest rate swap
 agreement                                       18,027            --
Purchase of treasury stock                      (26,083)     (133,095)
Settlement of equity forward purchase
 agreement                                           --       (78,684)
Net cash used in financing activities          (232,591)      (34,690)
Effect of exchange rate changes on cash          (5,197)       (3,507)
Net increase in cash and cash equivalents       131,264       153,077
Cash and cash equivalents at beginning of
 period                                         263,560       110,483
Cash and cash equivalents at end of period  $   394,824   $   263,560
                    STAPLES, INC. AND SUBSIDIARIES
                           Segment Reporting
                     (Dollar Amounts in Thousands)
                   13 Weeks     14 Weeks     52 Weeks      53 Weeks
                     Ended        Ended        Ended         Ended
                  February 2,  February 3,  February 2,   February 3,
                     2002         2001         2002          2001
Sales by Segment:
North American
 Retail           $ 1,928,830  $ 2,066,239  $ 6,914,219   $ 7,001,339
North American
 Delivery             764,663      782,278    3,008,618     2,779,921
European
 Operations           235,714      224,348      796,356       717,069
Total             $ 2,929,207  $ 3,072,865  $10,719,193   $10,498,329
Divested
 Businesses                --       41,954       25,180       175,342
Consolidated      $ 2,929,207  $ 3,114,819  $10,744,373   $10,673,671
Business Unit
 Income (Loss):
North American
 Retail (1)       $   142,046  $   138,473  $   321,364   $   427,954
North American
 Delivery              65,575       37,284      205,630       112,100
European
 Operations             9,492        2,120       (6,584)      (24,378)
Total business
 unit income      $   217,113  $   177,877  $   520,410   $   515,676
Divested
 Businesses                --       (5,079)      (1,537)      (27,833)
Store closure
 (charge) credit      (50,092)          --      (50,092)        7,250
Asset impairment
 and other charges    (10,717)    (205,750)     (10,717)     (205,750)
Interest and other
 expense, net          (3,787)     (13,349)     (27,219)      (45,158)
Income (loss)
 before income
 taxes            $   152,517  $   (46,301) $   430,845   $   244,185
(1) Business Unit Income for the 13 and 52 weeks ended February 2,
2002 includes a $7.4 million charge related to the write-down of
inventory to net realizable value for 31 stores to be closed in Q1
2002.

CONTACT:
Staples, Inc.
Laurel Lefebvre
Director, Investor Relations
508-253-4080
or
Staples, Inc.
Tom Nutile
Vice President, Public Relations
508-253-1833
or
Staples, Inc.
Deborah Hohler
Public Relations Manager
508-253-8509