Print Page  |  Close Window

News Release

Staples, Inc. First Quarter Earnings Exceed Expectations; Company Achieves Significant Progress on Back to Brighton Profit Improvement Plan
FRAMINGHAM, Mass., May 21, 2002 (BUSINESS WIRE) -- Staples, Inc. (Nasdaq: SPLS) today announced the results for the first quarter ended May 4, 2002. The company reported net income of $94 million for the quarter, or $0.20 per share on a diluted basis. Excluding a one-time tax benefit recorded in the first quarter, related to the Q4 2000 asset impairment charge for Staples Communications, the company achieved net income of $65 million or $0.14 per share. This performance exceeded the First Call consensus estimate of $0.11, and represents a 75 percent increase over earnings per share of $0.08 in the first quarter of 2001.

                                     13 Weeks Ended    13 Weeks Ended
                                      May 4, 2002        May 5, 2001
Net income (in thousands):
As reported (GAAP)                       $93,869          $39,507
Adjustments:
  One-time tax benefit                  ($29,000)            -
As adjusted                              $64,869          $39,507
                                      13 Weeks Ended    13 Weeks Ended
                                        May 4, 2002       May 5, 2001
Diluted earnings per share:
As reported (GAAP) - Staples, Inc. stock   $0.20
As reported (GAAP) - Staples RD stock                       $0.09
Adjustments:
  One-time tax benefit                    ($0.06)             -
  Adjustment for conversion of
   Staples.com stock                         -             ($0.01)
As adjusted                                $0.14            $0.08
Sales grew to $2.74 billion, an increase of three percent, versus $2.67 billion reported for the same period the prior year. Overall company comparable sales for the quarter were flat, with retail only comparable sales down two percent, a significant improvement from the previous quarter. Continued strong comparable sales performance in consumables categories of six percent was overshadowed by weakness in technology and furniture as business customers continue to exercise restraint in purchases of capital goods.

"We are very pleased with our strong results for the first quarter," said Ron Sargent, Staples' president and chief executive officer. "Solid improvement in key metrics measuring sales and earnings momentum, such as customer count comparables, customer service levels and new store revenue productivity, give us confidence that we are on track to achieve our goals this year and beyond."

Staples North American Retail

In the North American Retail business, sales for the first quarter were $1.73 billion, up one percent versus last year. Business unit income was $59 million, a dramatic improvement of 53 percent compared to the prior year. During the first quarter, Staples opened 17 stores in North America, ending the quarter operating 1,247 stores. In 2002, the company plans to open no more than 75 new stores in the US, and 20 stores in Canada.

Staples North American Delivery

Staples North American Delivery reported first quarter sales of $812 million, up nine percent versus the first quarter of last year. Business unit income was $48 million, a 23 percent increase compared to the same period in 2001. Contract account acquisition continued its industry-leading momentum, achieving double-digit sales growth and adding 3,000 new accounts in the first quarter while customer retention rates and profitability levels continue to increase.

Staples European Business

Staples continued to make progress in its European operations. The company reported revenues of $206 million in Europe, a seven percent increase versus the previous year's first quarter. Comparable sales grew six percent and business unit income improved 53 percent to a loss of $1.6 million versus the first quarter 2001. The company successfully launched its first European Web site in Germany and opened five stores in Europe during the quarter.

Back to Brighton Results

"Back to Brighton," a comprehensive improvement plan launched at the end of last year, is comprised of three key initiatives: restoring profit margins to historical levels, improving asset turnover and driving profitable sales growth. Initial results are encouraging.

Operating Margin Improvements

  • Staples made substantial progress toward its goal of $200 million in cost savings, achieving $40 million from the successful implementation of operating margin initiatives to improve merchandise mix, procurement, G&A, and logistics.
  • Generated a 250 basis point improvement in operating profit from initiatives to enhance the profitability of Staples Business Delivery through best practices and a heightened focus on customer service.
Asset Productivity
  • Completed 42 remodels to the Dover store format at an average cost of $375 thousand, nearly half the original cost.
  • Improved inventory turns by 24 basis points compared to last year's results, to 4.67 turns.
  • Increased return on net assets by 126 basis points compared to the same period last year.
Profitable Sales Growth
  • Results of the company's retail strategies - higher sales productivity, lower asset investments, and stronger margins - indicate significant opportunity for continued store growth. North American sales per new store week demonstrated meaningful improvement during the quarter.
  • Initial Dover remodels demonstrate a seven to eight percent sales increase.
  • To drive sales while offering customers high quality and value, the company increased its Staples branded products to 500 items and plans to offer 1,000 items by Back-to-School.

"Our first quarter performance clearly indicates that Back to Brighton is working," said Sargent. "A strong team is in place to execute the plan and drive significant improvement in our results. We are encouraged by the progress we have made and confident that our continued efforts will result in achieving returns 200 basis points above our cost of capital over time."

Outlook for Second Quarter and Fiscal Year 2002

In view of the significant investments in the Dover remodel program and in marketing activities planned for the second quarter, historically Staples' smallest quarter of the year, the company does not anticipate attaining the same magnitude of earnings growth achieved in the first quarter. The company expects to achieve second quarter earnings per share consistent with current First Call consensus of $0.12 per share.

The company announced that it is increasing its expectations for earnings per share to be in the range of $0.79 to $0.83 for the full year, with the anticipation of a mid to high single digit increase in revenue for 2002. "Our industry-leading delivery businesses and the successful Dover store format, combined with a tight control on operating expenses, are paving the way for us to deliver a strong performance in 2002," said Sargent.

Staples will host a live Internet broadcast of its first 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 May 21, through midnight on Tuesday, May 28.

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 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 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' Annual Report on Form 10-K for the year ending February 2, 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)
                                                 May 4,    February 2,
                                                  2002        2002
                                              (Unaudited)
ASSETS
Current Assets:
 Cash and cash equivalents                    $ 487,756     $ 394,824
 Merchandise inventories                      1,480,162     1,459,792
 Receivables, net                               331,529       338,581
 Deferred income taxes                          110,861       117,560
 Prepaid expenses and other current assets       86,393        92,070
        Total current assets                  2,496,701     2,402,827
Property and Equipment:
 Land and buildings                             440,544       433,569
 Leasehold improvements                         572,492       552,250
 Equipment                                      845,287       820,053
 Furniture and fixtures                         424,037       406,565
        Total property and equipment          2,282,360     2,212,437
 Less accumulated depreciation and
  amortization                                  915,933       853,685
        Net property and equipment            1,366,427     1,358,752
Other Assets:
 Lease acquisition costs, net of
  amortization                                   53,405        54,557
 Goodwill, net of amortization                  223,718       223,718
 Other                                           53,317        53,181
        Total other assets                      330,440       331,456
                                             $4,193,568    $4,093,035

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 Accounts payable                             $ 922,136     $ 935,442
 Accrued expenses and other current
  liabilities                                   611,958       655,274
 Debt maturing within one year                    6,699         4,983
        Total current liabilities             1,540,793     1,595,699
Long-Term Debt                                  356,777       350,225
Deferred Tax Liability                            3,386         6,738
Other Long-Term Obligations                      90,147        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
  495,187,848 shares at May 4, 2002 and
  491,564,105 shares at February 2, 2002            297           295
 Additional paid-in capital                   1,408,293     1,364,355
 Cumulative foreign currency translation
  adjustments                                   (16,163)      (27,129)
 Retained earnings                            1,366,860     1,272,991
 Less: Staples, Inc. treasury stock at
  cost, 27,723,775 shares at May 4, 2002,
  and 27,569,880 shares at February 2, 2002    (556,822)     (556,338)
          Total stockholders' equity          2,202,465     2,054,174
                                             $4,193,568    $4,093,035

                    STAPLES, INC. AND SUBSIDIARIES
                   Consolidated Statements of Income
         (Dollar Amounts in Thousands, Except Per Share Data)
                                                     (Unaudited)
                                                   13 Weeks Ended
                                                 May 4,        May 5,
                                                  2002          2001
Sales                                       $ 2,744,766   $ 2,667,076
Cost of goods sold and occupancy costs        2,084,848     2,050,469
    Gross profit                                659,918       616,607
Operating and other expenses:
  Operating and selling                         445,610       427,424
  Pre-opening                                     1,886         5,176
  General and administrative                    107,084       109,889
  Amortization of goodwill                            -         1,646
  Interest and other expense, net                 2,372         8,233
    Total operating and other expenses          556,952       552,368
   Income before income taxes                   102,966        64,239
Income tax expense                                9,097        24,732
   Net income                                  $ 93,869      $ 39,507
   Net income attributed to:
    Staples, Inc. Stock                        $ 93,869           $ -
    Staples RD Stock                                  -        39,683
    Staples.com Stock                                 -          (176)
                                               $ 93,869      $ 39,507
   Basic earnings per common share:
    Staples, Inc. Stock                          $ 0.20           $ -
    Staples RD Stock                                $ -        $ 0.09
    Staples.com Stock                               $ -       $ (0.02)
   Diluted earnings per common share:
    Staples, Inc. Stock                          $ 0.20           $ -
    Staples RD Stock                                $ -        $ 0.09
    Staples.com Stock                               $ -       $ (0.02)
   Number of shares used in computing basic
   earnings per common share:
    Staples, Inc. Stock                         463,854             -
    Staples RD Stock                                  -       454,793
    Staples.com Stock                                 -         8,531
   Number of shares used in computing diluted
   earnings per common share:
    Staples, Inc. Stock                         471,828             -
    Staples RD Stock                                  -       461,530
    Staples.com Stock                                 -         8,531

                    STAPLES, INC. AND SUBSIDIARIES
                 Consolidated Statements of Cash Flows
                     (Dollar Amounts in Thousands)
                                                     (Unaudited)
                                                   13 Weeks Ended
                                                 May 4,        May 5,
                                                  2002          2001
Operating Activities:
 Net income                                    $ 93,869      $ 39,507
 Adjustments to reconcile net income to
  net cash provided by operating activities:
    Depreciation and amortization                63,117        58,558
    Tax benefit from worthless stock deduction  (29,000)            -
    Deferred tax expense (benefit)                7,349        (6,285)
    Other                                        11,551         9,138
    Change in assets and liabilities,
     net of companies acquired/divested
     using purchase accounting:
     (Increase) Decrease in merchandise
       inventories                              (11,472)       43,600
      Decrease (Increase) in receivables          9,101       (25,307)
      Decrease (Increase) in prepaid
       expenses and other assets                  5,942       (14,855)
      Decrease in accounts payable, accrued
       expenses and other current liabilities   (24,158)     (167,606)
      Increase in other long-term obligations     3,428         2,618
                                                 35,858      (100,139)
Net cash provided by (used in) operating
 activities                                     129,727       (60,632)
Investing Activities:
 Acquisition of property and equipment          (62,944)      (88,332)
 Purchase of long-term investments                    -          (250)
 Acquisition of lease rights                       (276)         (251)
Net cash used in investing activities           (63,220)      (88,833)
Financing Activities:
 Proceeds from sale of capital stock             24,415         5,095
 Proceeds from borrowings                         1,425       323,110
 Payments on borrowings                            (677)     (304,432)
 Increase in retained securitized accounts
  receivable                                          -       (86,109)
 Purchase of treasury stock                        (484)       (7,366)
Net cash provided by (used in) financing
 activities                                      24,679       (69,702)
Effect of exchange rate changes on cash           1,746        (2,545)
Net increase (decrease) in cash and cash
 equivalents                                     92,932      (221,712)
Cash and cash equivalents at beginning
 of period                                      394,824       263,560
Cash and cash equivalents at end of period    $ 487,756      $ 41,848

                    STAPLES, INC. AND SUBSIDIARIES
                           Segment Reporting
                     (Dollar Amounts in Thousands)
                                                     (Unaudited)
                                                   13 Weeks Ended
                                                 May 4,        May 5,
                                                  2002          2001
Sales by Segment:
North American Retail                       $ 1,726,893   $ 1,706,101
North American Delivery                         811,991       743,689
European Operations                             205,882       192,106
  Total                                     $ 2,744,766   $ 2,641,896
Divested Business                                     -        25,180
  Consolidated                              $ 2,744,766   $ 2,667,076
Business Unit Income/(Loss):
North American Retail                          $ 59,218      $ 38,725
North American Delivery                          47,734        38,694
European Operations                              (1,614)       (3,410)
  Total business unit income                  $ 105,338      $ 74,009
Divested Business                                     -        (1,537)
Interest and other expense, net                  (2,372)       (8,233)
  Income before income taxes                  $ 102,966      $ 64,239

CONTACT:

Staples, Inc.
Investor Contact:
Laurel Lefebvre
Director, Investor Relations
508-253-4080
or
Media Contact:
Deborah Hohler
Public Relations Manager
508-253-8509