|Staples Announces Strong Second Quarter 2002 Results; Earnings Per Share Increase 44 Percent|
FRAMINGHAM, Mass., Aug 20, 2002 (BUSINESS WIRE) -- Staples, Inc. (Nasdaq: SPLS) today announced the results for the second quarter ended August 3, 2002. The company reported net income of $60 million for the quarter, or $0.13 per share on a diluted basis, exceeding the First Call consensus estimate of $0.12, and a 44 percent increase over earnings per share of $0.09 reported for the second quarter of 2001.
Sales grew to $2.43 billion, an increase of five percent, versus $2.31 billion reported for the same period the prior year. Overall comparable sales were flat and retail only decreased one percent. Core office product categories remained strong, with comparable sales increasing seven percent, but weakness in technology categories continued to weigh on Staples' overall comparable sales performance. Profitability levels advanced in each business unit with an overall improvement of 30 percent in business unit income.
In addition, the key metrics that the company tracks to measure the success of the business showed positive momentum in the second quarter, for example:
At the beginning of the year, Staples announced its comprehensive profit improvement plan, called Back to Brighton. The plan is composed of three key elements: driving profitable sales growth, improving operating margins and enhancing asset utilization. Several initiatives fall under each of the three categories, which are being implemented in an integrated way to drive the single goal of creating shareholder value.
"We're delighted to report strong results that prove our Back to Brighton plan is achieving its goals," said Ron Sargent, Staples President and Chief Executive Officer. "In the second quarter we achieved an additional $40 million of our $200 million goal of operating margin savings and improved return on net assets significantly. We also made excellent progress in the initiatives we identified to grow our top line profitably."
Staples North American Retail
Staples has rolled out its Back to Brighton customer service initiatives to nearly 400 stores, with plans to complete the year with a total of 650 stores converted. This initiative aims to enhance customer engagement and includes a new associate incentive plan promoting teamwork. The initial results, as measured by increases in sales, customer transactions and margins, are exceeding expectations and Mystery Shop scores have improved dramatically.
Staples North American Delivery
On July 17, Staples closed the previously announced acquisition of Medical Arts Press (MAP), a leading direct marketer of specialized printed office products and practice related supplies for medical offices. MAP, which reports to Quill, will provide significant opportunities to expand Staples' product offering, as well as to increase sales to the profitable medical vertical market.
"In addition to improved profitability levels throughout our business, we've rallied the entire company behind our comprehensive improvement plan," said Sargent. "We're confident that we'll achieve our aggressive goals this year and continue to build on our platform for profitable growth."
Outlook for Third Quarter and Fiscal Year 2002
Staples will host a live Internet broadcast of its second quarter 2002 earnings conference call today at 8:00 a.m. E.D.T. 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. E.D.T. on August 20, through midnight on Monday, August 26.
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 risks and uncertainties, including but not limited to: Staples' market is highly competitive and Staples may not continue to compete successfully; Staples may be unable to continue to successfully open new stores; Staples' new Dover format store may not be successful; Staples' quarterly operating results are subject to significant fluctuation 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; Staples' operating results may be impacted by changes and uncertainty in the economy; Staples' stock price may fluctuate based on market expectations; Staples' growth may continue to strain operations; Staples' European operations may not become profitable; Staples' International operations expose Staples to the unique risks inherent in foreign operations; Staples may be unable to obtain adequate future financing; and those factors discussed in Staples' Form 10-Q for the quarter ending May 4, 2002, which is on file with the Securities and Exchange Commission. 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.
STAPLES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Dollar Amounts in Thousands, Except Share Data) August 3, February 2, 2002 2002 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 174,880 $ 394,824 Merchandise inventories 1,696,132 1,459,792 Receivables, net 242,445 338,581 Deferred income taxes 103,406 117,560 Prepaid expenses and other current assets 86,911 92,070 Total current assets 2,303,774 2,402,827 Property and Equipment: Land and buildings 457,156 433,569 Leasehold improvements 592,299 552,250 Equipment 872,989 820,053 Furniture and fixtures 444,772 406,565 Total property and equipment 2,367,216 2,212,437 Less accumulated depreciation and amortization 976,789 853,685 Net property and equipment 1,390,427 1,358,752 Other Assets: Lease acquisition costs, net of amortization 52,169 54,557 Goodwill, net of amortization 567,221 223,718 Other 83,209 53,181 Total other assets 702,599 331,456 $ 4,396,800 $ 4,093,035 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 979,731 $ 935,442 Accrued expenses and other current liabilities 555,136 655,274 Debt maturing within one year 16,189 4,983 Total current liabilities 1,551,056 1,595,699 Long-Term Debt 459,620 350,225 Deferred Tax Liability 3,541 6,738 Other Long-Term Obligations 89,430 86,199 Stockholders' Equity: Preferred stock, $.01 par value 5,000,000 shares authorized; no shares issued - - Common stock: Staples, Inc. Stock, $.0006 par value 2,100,000,000 shares authorized; issued 497,060,316 shares at August 3, 2002 and 491,564,105 shares at February 2, 2002 298 295 Additional paid-in capital 1,436,745 1,364,355 Cumulative foreign currency translation adjustments (13,482) (27,129) Retained earnings 1,426,414 1,272,991 Less: Staples, Inc. treasury stock at cost, 27,728,182 shares at August 3, 2002, and 27,569,880 shares at February 2, 2002 (556,822) (556,338) Total stockholders' equity 2,293,153 2,054,174 $ 4,396,800 $ 4,093,035 STAPLES, INC. AND SUBSIDIARIES Consolidated Statements of Income (Dollar Amounts in Thousands, Except Per Share Data) (Unaudited) (Unaudited) 13 Weeks Ended 26 Weeks Ended August 3, August 4, August 3, August 4, 2002 2001 2002 2001 Sales $ 2,426,475 $ 2,314,229 $ 5,171,241 $ 4,981,305 Cost of goods sold and occupancy costs 1,828,513 1,764,499 3,913,361 3,814,968 Gross profit 597,962 549,730 1,257,880 1,166,337 Operating and other expenses: Operating and selling 400,006 380,127 845,616 807,551 Pre-opening 2,346 3,971 4,232 9,147 General and administrative 98,698 89,610 205,782 199,499 Amortization of goodwill - 1,646 - 3,292 Interest and other expense, net 2,381 8,762 4,753 16,995 Total operating and other expenses 503,431 484,116 1,060,383 1,036,484 Income before income taxes 94,531 65,614 197,497 129,853 Income tax expense 34,976 25,261 44,073 49,993 Net income $ 59,555 $ 40,353 $ 153,424 $ 79,860 Net income attributed to: Staples, Inc. Stock $ 59,555 $ - $ 153,424 $ - Staples RD Stock - 40,057 - 79,740 Staples.com Stock - 296 - 120 $ 59,555 $ 40,353 $ 153,424 $ 79,860 Basic earnings per common share: Staples, Inc. Stock $ 0.13 $ - $ 0.33 $ - Staples RD Stock $ - $ 0.09 $ - $ 0.18 Staples.com Stock $ - $ 0.04 $ - $ 0.01 Diluted earnings per common share: Staples, Inc. Stock $ 0.13 $ - $ 0.32 $ - Staples RD Stock $ - $ 0.09 $ - $ 0.17 Staples.com Stock $ - $ 0.03 $ - $ 0.01 Number of shares used in computing basic earnings per common share: Staples, Inc. Stock 466,507 - 465,181 - Staples RD Stock - 456,004 - 455,399 Staples.com Stock - 7,430 - 7,980 Number of shares used in computing diluted earnings per common share: Staples, Inc. Stock 472,835 - 472,332 - Staples RD Stock - 461,227 - 461,379 Staples.com Stock - 9,332 - 9,819 STAPLES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Dollar Amounts in Thousands) (Unaudited) 26 Weeks Ended August 3, August 4, 2002 2001 Operating Activities: Net income $ 153,424 $ 79,860 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 128,326 119,319 Tax benefit from worthless stock deduction (29,000) - Deferred tax expense (benefit) 17,274 (7,396) Other 17,365 11,138 Change in assets and liabilities, net of companies acquired/divested using purchase accounting: Increase in merchandise inventories (212,653) (61,438) Decrease (increase) in receivables 13,899 (56,084) Decrease (increase) in prepaid expenses and other assets 7,972 (23,711) Decrease in accounts payable, accrued expenses and other current liabilities (29,063) (78,381) Increase in other long-term obligations 2,909 4,327 (82,971) (92,226) Net cash provided by (used in) operating activities 70,453 (12,366) Investing Activities: Acquisition of property and equipment (133,257) (183,065) Acquisition of businesses, net of cash acquired (383,192) - Proceeds from the sale of short-term investments - 8,938 Purchase of long-term investments - (250) Other (403) (446) Net cash used in investing activities (516,852) (174,823) Financing Activities: Proceeds from sale of capital stock 43,122 18,252 Proceeds from borrowings 85,568 530,070 Payments on borrowings (1,097) (493,634) Decrease (increase) in retained securitized accounts receivable 100,000 (61,109) Purchase of treasury stock (484) (7,423) Net cash provided by (used in) financing activities 227,109 (13,844) Effect of exchange rate changes on cash (654) (2,457) Net decrease in cash and cash equivalents (219,944) (203,490) Cash and cash equivalents at beginning of period 394,824 263,560 Cash and cash equivalents at end of period $ 174,880 $ 60,070 STAPLES, INC. AND SUBSIDIARIES Segment Reporting (Dollar Amounts in Thousands) (Unaudited) (Unaudited) 13 Weeks Ended 26 Weeks Ended August 3, August 4, August 3, August 4, 2002 2001 2002 2001 Sales by Segment: North American Retail $ 1,456,129 $ 1,427,628 $ 3,183,022 $ 3,133,729 North American Delivery 780,712 722,668 1,592,703 1,466,357 European Operations 189,634 163,933 395,516 356,039 Total $ 2,426,475 $ 2,314,229 $ 5,171,241 $ 4,956,125 Divested Business - - - 25,180 Consolidated $ 2,426,475 $ 2,314,229 $ 5,171,241 $ 4,981,305 Business Unit Income/(Loss): North American Retail $ 45,790 $ 40,129 $ 105,008 $ 78,854 North American Delivery 57,145 46,651 104,879 85,345 European Operations (6,023) (12,404) (7,637) (15,814) Total business unit income $ 96,912 $ 74,376 $ 202,250 $ 148,385 Divested Business - - - (1,537) Interest and other expense, net (2,381) (8,762) (4,753) (16,995) Income before income taxes $ 94,531 $ 65,614 $ 197,497 $ 129,853