Staples, Inc. Announces Third Quarter Performance

Staples, Inc. (Nasdaq:SPLS) announced today the results for its third quarter ended November 1, 2008. Total company sales increased 34 percent to $7.0 billion compared to the third quarter of 2007. Net income declined 43 percent year over year to $157 million, and earnings per share, on a diluted basis, decreased 42 percent to $0.22, from the $0.38 achieved in the third quarter of last year. Excluding the impact of Corporate Express, total company sales decreased three percent to $5.0 billion compared to the third quarter of 2007.

Excluding the pre–tax charge of $38 million related to the settlement of California wage and hour class action litigation realized during the third quarter of 2007, as well as the impact of previously announced special charges related to the acquisition of Corporate Express during the third quarter of 2008, adjusted earnings per share, on a diluted basis, were flat versus the third quarter of 2007 at $0.42.

As a result of the company´s decision to move toward one global Staples brand, the legacy brands associated with Staples European Catalog will be eliminated over time. During the third quarter of 2008, the company recorded a non–cash, pre–tax charge of $124 million, reflecting its plans to discontinue the use of trade names Staples obtained from the 2002 Guilbert acquisition.

The company also recorded a pre–tax integration and restructuring expense of $9 million related to Corporate Express during the third quarter of 2008.

Additionally, the company is developing tax planning strategies to optimize the benefits of the net operating losses of Corporate Express. As a result of the company´s evolving plans, Staples recorded a non–cash charge of $57 million, which resulted in a one–time increase to the company´s effective tax rate in the third quarter of 2008. The company anticipates finalizing its tax planning strategy to mitigate the financial impact of this charge in the next three to six months.

Including $1.1 billion of Corporate Express sales, North American Delivery grew sales 61 percent to $2.8 billion during the third quarter of 2008. Excluding the impact of Corporate Express, North American Delivery sales declined one percent to $1.7 billion during the third quarter, reflecting lower spend per existing customer, particularly in durable categories such as furniture and business machines, partially offset by strong customer acquisition and retention, as well as strength in ink and paper.

North American Retail sales decreased six percent in the third quarter of 2008 to $2.6 billion, and comparable store sales decreased eight percent versus the third quarter of 2007. This reflects declines in average order size and customer traffic, as well as weakness in computers and accessories, business machines, and furniture, partially offset by strength in technology services and ink.

Including $886 million of Corporate Express sales, International sales increased 127 percent to $1.6 billion during the third quarter of 2008. Excluding the impact of Corporate Express, International sales declined one percent in US dollars and were flat in local currency compared to the third quarter of 2007. Comparable store sales in Europe decreased six percent versus the same period in 2007, as a result of weakness in average order size and customer traffic.

"Staples´ formula of focusing on customers and investing in our business continues to pay off with market share gains in these challenging times," said Ron Sargent, Staples´ chairman and chief executive officer. "We are pleased with our progress integrating Corporate Express, encouraged by our plans to drive store productivity in North American Retail, and enthusiastic about our top and bottom line opportunities in International."

Highlights for the third quarter include:

Total Company

• Achieved third quarter sales of $7.0 billion, including $2.0 billion of sales from Corporate Express.
• Excluding the impact of pre–tax special items, and including the results of Corporate Express, operating income rate declined 151 basis points to 7.51 percent compared to the third quarter of 2007, primarily reflecting the inclusion of the lower margin Corporate Express business, somewhat offset by operating margin improvement in the pre–acquisition business.
• Generated year to date free cash flow of $921 million after $244 million in capital expenditures, compared to free cash flow of $526 million for the same period last year.
• Ended the quarter with approximately $1.6 billion in liquidity, including $888 million in cash and cash equivalents and $686 million of available lines of credit.

North American Delivery

• Achieved third quarter sales of $2.8 billion, including $1.1 billion of sales from Corporate Express.
• Reported a 201 basis point decline in operating income rate to 8.85 percent versus the same period in 2007, primarily reflecting the inclusion of the Corporate Express business, somewhat offset by gross margin improvement and cost controls in marketing and distribution expense in the pre–acquisition business.
• Made steady progress integrating Corporate Express, announcing new organizational structure and completing vendor pricing analysis during the third quarter.

North American Retail

• Achieved third quarter sales of $2.6 billion.
• Reported an 83 basis point decline in operating income rate to 10.29 percent versus the same period in 2007, primarily reflecting deleverage in rent and labor expense despite tight control of variable expenses and an increase in product margin rate.
• Opened 32 stores and closed two stores, ending the third quarter with 1,832 stores in North America.
• Reduced average inventory per store by 12 percent versus the same period in 2007.

International

• Achieved third quarter sales of $1.6 billion, including $886 million of Corporate Express sales.
• Reported a 21 basis point improvement in operating income rate to 3.55 percent versus the same period in 2007, primarily reflecting the inclusion of the Corporate Express business, as well as strong expense management in the pre–acquisition business.
• Began Corporate Express integration process, including new organizational structure, integration of back office and supply chain operations, initial vendor pricing negotiations, and rebranding plan.
• Opened two stores in Portugal and one store in the UK, and closed three stores in China, ending the third quarter with 334 stores in Europe and 28 stores in China.

Corporate Express Integration Outlook

As a result of the Corporate Express acquisition, the company anticipates total annual synergies to build, over a three–year period, to $300 million. In conjunction with the acquisition, the company expects to incur the following incremental expenses during Q4 2008 and FY 2009.

Presentation of Non–GAAP Information

This press release presents certain results both with and without the results of Corporate Express. The presentation of results that exclude these items are non–GAAP financial measures that should be considered in addition to, and should not be considered superior to or as a substitute for, the presentation of results determined in accordance with GAAP. Management believes that the non–GAAP financial measures presented in this press release provide a more meaningful comparison of the company´s year–over–year performance. Management also uses these non–GAAP financial measures to evaluate the operating results of the company´s pre–acquisition business against prior year results and its operating plan.

Today´s Conference Call

The company will host a conference call today at 8:00 a.m. (ET) to review these results and its outlook. Investors may listen to the call at http://investor.staples.com.

About Staples

Staples, the world´s largest office products company, is committed to making it easy for customers to buy a wide range of office products, including supplies, technology, furniture, and business services. With $27 billion in sales, Staples serves businesses of all sizes and consumers in 27 countries throughout North and South America, Europe, Asia and Australia. In July 2008, Staples acquired Corporate Express, one of the world´s leading suppliers of office products to businesses and institutions. Staples invented the office superstore concept in 1986 and is headquartered outside Boston. More information about Staples (Nasdaq: SPLS) 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 including, but not limited to, the information set forth under headings that include the words "Corporate Express Integration Outlook" or "Estimates" and other statements regarding our future business and financial performance. Some of the forward–looking statements are based on a series of expectations, assumptions, estimates and projections which involve substantial uncertainty and risk, including the review of our assessments by our outside auditor and changes in management´s assumptions and projections. 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: economic conditions may cause a decline in business and consumer spending which could adversely affect our business and financial performance; our market is highly competitive and we may not continue to compete successfully; we may not be able to successfully integrate Corporate Express into our existing operations to realize anticipated benefits and our growth may strain our operations; we may be unable to continue to open new stores and enter new markets successfully; if we are unable to manage our debt, it could materially harm our business and financial condition and restrict our operating flexibility; we may be unable to attract and retain qualified associates; our quarterly operating results are subject to significant fluctuation; our expanding international operations expose us to the unique risks inherent in foreign operations; our business may be adversely affected by the actions of and risks associated with our third party vendors; our expanded offering of proprietary branded products may not improve our financial performance and may expose us to intellectual property and product liability claims; our effective tax rate may fluctuate; our information security may be compromised; various legal proceedings may adversely affect our business and financial performance; and those other factors discussed or referenced in our most recent quarterly report on Form 10–Q filed with the SEC, under the heading "Risk Factors" and elsewhere, and any subsequent periodic or current reports filed by us with the SEC. In addition, any forward–looking statements represent our estimates only as of the date such statements are made (unless another date is indicated) 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.

WhatsAppFacebookTwitterLinkedinBeloudBluesky