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Staples Inc. Reports Industry Leading Second Quarter Results; ...Earnings Per Share Up 38 Percent; Sales Rise 25 Percent; Net Income Increases 56 Percent
    Business Editors

    FRAMINGHAM, Mass.--(BUSINESS WIRE)--Aug. 18, 1999--Staples Inc. (NASDAQ:SPLS), the pioneer of the office superstore industry, today reported net income of $52.7 million, or $.11 per common share on a diluted basis, for the second quarter, which ended July 31, 1999, compared with $33.8 million, or $.08 per common share on a diluted basis, for the prior year.

The earnings per share calculation for the prior year excludes a one-time charge for the merger with Quill Corporation and includes a three-for-two stock split in January 1999. Historical data has been restated to reflect the merger with Quill under the pooling of interests method of accounting.

Total sales for the quarter rose 25 percent to $1.84 billion from $1.48 billion reported for the same period last year. Comparable sales in the 800 stores that have been open for more than one year, and delivery hubs, increased 9 percent for the second quarter.

"Staples associates achieved another quarter of impressive growth, substantially outpacing and out-executing our competitors," said Staples Chairman and Chief Executive Officer Thomas G. Stemberg. "In addition to our aggressive North American store expansion plan, we will continue to drive revenue through enhancing services to our small business customer, e-commerce initiatives, geographic expansion in regions such as Europe, and a commitment to finding better ways to serve our target market."

In a separate press release issued today, Staples announced two strategic Internet investments to enhance the company's e-commerce initiatives. Staples invested $6 million in HotOffice Technologies, Inc., a Web-based intranet service provider to small- and medium-sized businesses, and $3.5 million in DSL.net, which offers economical high-speed Internet access, also to small- to medium-sized businesses. Both agreements include extensive marketing initiatives that will drive sales across nearly all Staples sales channels.

"These companies are focused on the same mission as Staples -- to help small business slash the cost and hassle of running an office," said Stemberg. "Investments in Internet leaders that target our key market segment will help us build our presence as the one-stop e-commerce shop for small business."

In addition, this quarter Staples:

--Opened 49 retail stores, ending the quarter with 1,009 stores worldwide, including 791 stores in the United States; 139 stores in Canada; 53 stores in the United Kingdom; and 26 stores in Germany;

--Made major European acquisitions to strengthen its presence in Germany and enter operations in two new countries, the Netherlands and Portugal;

--Improved infrastructure in its delivered office products business, opening distribution centers in Vancouver, B.C., and Stockton, Calif., and opening a low-cost, multilingual call center in Halifax, N.S., to serve all channels of its delivered office supplies business;

--Focused on increasing Staples.com sales with a redesigned, streamlined Web site;

--Continued its focus on becoming the service solution provider to small business by rolling out payroll services nationwide, and packaging and shipping services in select markets; and

--Developed special order capabilities to broaden in-store product and service selection while minimizing investment in inventory and floor space.

About Staples

Staples Inc. is a $7 billion retailer of office supplies, furniture and technology to consumers and businesses from home-based businesses to Fortune 500 companies in the United States, Canada, the United Kingdom and Germany. Headquartered outside Boston, Staples invented the office superstore concept and today is the largest operator of office superstores in the world. The company has over 44,000 employees serving customers through more than 1,000 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 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 secondary offering of common stock and other documents on file with the Securities and Exchange Commission.

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

                             (Unaudited)              (Unaudited)
                           13 Weeks Ended            26 Weeks Ended
                        July 31,     August 1,   July 31,   August 1,
                          1999          1998       1999        1998

Sales                  $1,840,110   $1,475,705  $3,912,176  $3,146,316
Cost of goods
 sold and
 occupancy costs        1,385,551    1,127,778   2,962,864   2,417,611
 Gross profit             454,559      347,927     949,312     728,705

Operating and
 other expenses:
 Operating and
  selling                 270,737      206,971     586,057     455,382
 Pre-opening                4,899        4,232       9,407       7,584
 General and
  administrative           85,510       70,694     174,250     138,180
 Amortization of
  goodwill                  2,971          927       5,258       1,851
 Merger-related and
  integration costs          --         41,000        --        41,000
 Interest and other
  expense, net              3,976        5,920       5,392      10,614
  Total operating
   and other expenses     368,093      329,744     780,364     654,611
 Income before
  income taxes             86,466       18,183     168,948      74,094
Income tax expense         33,722        9,319      65,890      29,330
  Net income before
   minority interest       52,744        8,864     103,058      44,764
 Minority interest           --            110         --          160
  Net income              $52,744       $8,974    $103,058     $44,924
Basic earnings per
 common share
 Historical net income
  per common share           $0.11       $0.02       $0.22       $0.11

Diluted earnings
 per common share
 Historical net income
  per common share           $0.11       $0.02       $0.22       $0.10
Pro forma:
 Historical net income                                         $44,924
 Provision for
  income taxes on
  previously untaxed
  earnings of
  pooled S-Corporation
  income                                                         1,814

 Pro forma net income                                          $43,110


Basic earnings per
 common share Pro forma
 net income per
 common share                                                    $0.10


Diluted earnings per
 common share Pro forma
 net income per
 common share                                                    $0.10


Number of shares used
 in computing historical
 and pro forma basic
 net income per
 common share          462,421,805 423,959,190 462,627,140 421,493,259

Number of shares used
 in computing historical
 and pro forma diluted
 net income per
 common share          476,032,234 436,549,991 476,416,623 433,742,268

See notes to consolidated financial statements.

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


                                                July 31,
                                                  1999     January 30,
                                              (Unaudited)      1999
ASSETS
Current Assets:
 Cash and cash equivalents                   $      --       $357,993
 Short-term investments                            1,252       17,428
 Merchandise inventories                       1,518,768    1,340,432
 Receivables, net                                378,114      221,836
 Deferred income taxes                            79,397       75,261
 Prepaid expenses and other current assets        51,700       51,150
  Total current assets                         2,029,231    2,064,100

Property and Equipment:
 Land and buildings                              246,948      231,378
 Leasehold improvements                          407,722      372,451
 Equipment                                       460,788      400,225
 Furniture and fixtures                          260,868      239,755
  Total property and equipment                 1,376,326    1,243,809
 Less accumulated depreciation
  and amortization                               449,763      403,520
  Net property and equipment                     926,563      840,289

Other Assets:
 Lease acquisition costs, net
  of amortization                                 70,098       75,127
 Investments                                      20,906         --
 Goodwill, net of amortization                   301,323      148,201
 Deferred income taxes                            30,819       28,735
 Other                                            26,306       22,814
  Total other assets                             449,452      274,877
                                              $3,405,246   $3,179,266

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 Accounts payable                               $863,878     $794,427
 Accrued expenses and other
  current liabilities                            444,224      438,311
 Debt maturing within one year                    43,997       32,594
  Total current liabilities                    1,352,099    1,265,332

Long-Term Debt                                   263,560      205,015
Other Long-Term Obligations                       55,909       52,033
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
  465,744,215 at July 31, 1999 and
  461,538,061 shares at January 30, 1999             279          277
 Additional paid-in capital                    1,096,308    1,043,194
 Cumulative foreign currency
  translation adjustments                        (12,772)     (11,675)
 Unrealized gain on investments                      (31)           7
 Retained earnings                               736,378      633,321
 Less: treasury stock at cost,
  3,119,153 shares at
  July 31, 1999 and 488,922 shares
  at January 30, 1999                            (86,484)      (8,238)
  Total stockholders' equity                   1,733,678    1,656,886

                                              $3,405,246   $3,179,266

See notes to consolidated financial statements.

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

                                                     (Unaudited)
                                                    26 Weeks Ended
                                                July 31,     August 1,
                                                  1999          1998
Operating Activities:
Net income                                      $103,058      $44,924
Adjustments to reconcile net
 income to net cash
 used in operating activities
Minority interest                                   --           (160)
Depreciation and amortization                     81,577       45,725
Merger-related and integration costs                --         41,000
Expense from 401K and PARS stock contribution      8,460        3,073
Deferred income tax benefit                       (6,208)      (7,098)
Change in assets and liabilities, net of
 companies acquired using
 purchase accounting:
Increase in merchandise inventories             (170,321)    (169,012)
Increase in receivables                         (136,723)     (56,419)
(Increase)/Decrease in prepaid
 expenses and other assets                          (977)       8,616
Increase in accounts payable, accrued
 expenses and other current liabilities           32,566       37,706
Increase in other long-term obligations            2,863        6,242
                                                (188,763)     (90,327)
Net cash used in operating activities            (85,705)     (45,403)

Investing Activities:
Acquisition of property and equipment           (147,787)    (136,713)
Acquisition of businesses, net
 of cash acquired                               (137,625)        --
Proceeds from sales and maturities
 of short-term investments                        32,765       11,313
Purchase of short-term investments               (16,651)      (6,854)
Proceeds from sales and maturities
 of long-term investments                           --         18,995
Purchase of long-term investments                (20,906)      (2,545)
Acquisition of lease rights                        1,946      (36,690)
Other                                                 88       (1,619)
Net cash used in investing activities           (288,170)    (154,113)

Financing Activities:
Proceeds from sale of capital stock               25,243       35,581
Proceeds from borrowings                         316,984           38
Payments on borrowings                          (248,326)     (52,082)
Purchase of dissenting shareholder
 S-Corporation stock                                --        (48,102)
Purchase of treasury stock                       (78,246)      (7,892)
Dividends to shareholders
 of acquired S-Corp                                 --        (15,601)
Net cash provided by/(used in)
 financing activities                             15,655      (88,058)

Effect of exchange rate changes on cash              227          248

Net decrease in cash and cash eqivalents        (357,993)    (287,326)    
Cash and cash equivalents at beginning of period 357,993      381,088
Cash and cash equivalents at end of period       $  --        $93,762

 See notes to consolidated financial statements.

     --30--bh/bos*

     CONTACT: Staples Inc. 
              Media Contact:
              Shannon Lapierre, 508/253-8468
              shannon.lapierre@staples.com
              or
              Investor Contact:
              Catherine Woods, 508/253-7342
              catherine.woods@staples.com

     KEYWORD: MASSACHUSETTS
     INDUSTRY KEYWORD: COMED COMPUTERS/ELECTRONICS RETAIL EARNINGS