Staples, Inc. Reports Record Fiscal 2004 and Fourth Quarter Results; N

Staples, Inc. Reports Record Fiscal 2004 and Fourth Quarter Results; North American Retail Comparable Sales Rose Four Percent for the Fiscal Year and Fourth Quarter

    Business Editors

    FRAMINGHAM, Mass.--(BUSINESS WIRE)--Feb. 24, 2005--

    Net Income Rose 19 Percent and Revenues Increased 13 Percent in the Fourth Quarter

    Company to Increase Annual Cash Dividend and Declare Three-For-Two Stock Dividend

    Staples, Inc. (NASDAQ: SPLS) announced today the results for its fiscal year and fourth quarter ended January 29, 2005. For fiscal year 2004, sales reached $14.4 billion, an 11 percent increase compared to 2003. Full year North American Retail comparable store sales increased four percent. The company reported 2004 net income of $708 million, or earnings per share on a diluted basis of $1.40, an increase of 41 percent on a GAAP basis from 2003. The company incurred a $62 million non-cash adjustment (net of taxes) as a result of the application of EITF 02-16 in the first quarter of 2003. On a pro forma basis, excluding the impact of EITF 02-16, net income increased 28 percent and earnings per share increased 25 percent versus 2003. Total company operating margins for the year rose to 7.8 percent.
    Total company sales for the fourth quarter grew 13 percent compared to the same quarter of 2003 to $4.1 billion. North American Retail continued its strong performance, with sales increasing eight percent and same store sales rising four percent versus last year. North American Delivery quarterly sales increased 19 percent with double-digit growth in each of its three business units. International operations grew sales 22 percent compared to the fourth quarter of 2003. Total company net income of $251 million, or earnings per share on a diluted basis of $0.50, rose 19 percent compared to the fourth quarter of 2003.
    The company also announced that its board of directors has approved an annual cash dividend of $0.25 per share payable on April 14, 2005, to shareholders of record on March 28, 2005. This represents a 25 percent increase over the dividend of $0.20 per share paid in 2004. The board also authorized a three-for-two stock dividend effective to shareholders of record on March 29, 2005, with a payment date of April 15, 2005.
    "Our 65,000 associates had a great year in 2004, delivering strong results, differentiating Staples' brand and advancing our market leadership around the world," said Ron Sargent, Staples' president and CEO.

    Key company accomplishments for the year and fourth quarter:

--	The company made significant progress delivering on Staples' brand promise, "we make buying office products easy," resulting in improved customer service across all business units. The company launched a new advertising campaign featuring the "easy button" concept, designed to make the association between "easy" and Staples concrete in customers' minds.
--	Staples' own brand products exceeded 15 percent of sales for the year.
--	The company generated $844 million in free cash flow in 2004 and ended the year with $1.5 billion in cash and short-term investments.
--	Inventory turns improved by 40 basis points year over year to 5.6 times, continuing progress from the company's Summit supply chain program.
--	North American Retail drove 30 percent improvement in business unit income for 2004, supported by the company's Copy Center initiative, improved customer service and strong execution in key categories.
--	North American Delivery grew sales 13 percent and business unit income 22 percent for the full year, successfully implementing strategies to acquire new customers and increase retention.
--	Worldwide e-commerce sales reached $3 billion for the year, a 25 percent increase versus 2003.
--	During the fourth quarter, the company acquired Officenet, an office products delivery business serving Argentina and Brazil, extending Staples' global presence to 21 countries.

    "We're starting off 2005 on rock solid footing," said Sargent. "Trends are strong, our team's execution has never been better and we are driving improvements in all areas of our business."

    Outlook

    For the full year 2005, the company anticipates revenue growth to be in the low double-digit range, with low single-digit North American Retail comparable sales. North American Delivery sales are expected to increase in the low double-digit range, and International revenues are expected to grow in the mid-teens. Earnings per share are expected to grow in the range of 15 to 18 percent.
    For the first quarter ending April 30, 2005, the company expects to achieve earnings per share in the range of $0.29 to $0.30. The company anticipates low double-digit sales growth for the total company and high single-digit growth in the North American Retail business, with low single-digit comparable sales. For the North American Delivery business, the company expects sales growth in the low to mid-teens. In the International businesses, sales growth in the mid-teens is expected.
    This outlook does not include any impact relating to the expensing of stock options under the Financial Accounting Standards Board's statement 123R, which is effective for quarters beginning after June 15, 2005. The adoption of this statement is not expected to have a significant impact on the company's growth assumptions after adjusting 2004 results for the impact of stock option expensing.

    About Staples

    Staples, Inc. invented the office superstore concept in 1986 and today is the world's largest office products company. With 65,000 talented associates, the company is committed to making it easy to buy a wide range of office products, including supplies, technology, furniture, and business services. With 2004 sales of $14.4 billion, Staples serves consumers and businesses ranging from home-based businesses to Fortune 500 companies in 21 countries throughout North and South America, Europe and Asia. Headquartered outside of Boston, Staples operates approximately 1,680 office superstores and also serves its customers through mail order catalog, e-commerce and contract businesses. More information 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: our market is highly competitive and we may not continue to compete successfully; we may be unable to continue to open new stores and enter new markets successfully; our growth may continue to strain operations, which could adversely affect our business and financial results; our operating results may be impacted by changes in the economy; our stock price may fluctuate based on market expectations; our quarterly operating results are subject to significant fluctuation and are 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; our expanding international operations expose us to the unique risks inherent in foreign operations; our debt level and operating lease commitments could impact our ability to obtain future financing and continue our growth strategy; a California wage and hour class action lawsuit; and those other factors discussed in our annual report on Form 10-K for the year ended January 29, 2005, which we filed with the Securities and Exchange Commission this morning, and any subsequent periodic reports filed by us with the SEC. 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)

January 29, January 31, 2005 2004 ----------- ---------- ASSETS Current assets: Cash and cash equivalents $ 997,310 $ 457,465 Short-term investments 472,231 934,275 Receivables, net 485,126 410,330 Merchandise inventories, net 1,602,530 1,465,989 Deferred income tax asset 86,041 96,247 Prepaid expenses and other current assets 138,374 114,598 ----------- ---------- Total current assets 3,781,612 3,478,904

Property and equipment: Land and buildings 649,175 601,063 Leasehold improvements 762,946 692,837 Equipment 1,140,234 1,045,605 Furniture and fixtures 597,293 533,104 ----------- ---------- Total property and equipment 3,149,648 2,872,609 Less accumulated depreciation and amortization 1,548,774 1,367,308 ----------- ---------- Net property and equipment 1,600,874 1,505,301

Lease acquisition costs, net of accumulated amortization 38,400 44,227 Intangible assets, net of accumulated amortization 222,520 209,541 Goodwill 1,321,464 1,202,007 Other assets 106,578 63,066 ----------- ---------- Total assets $ 7,071,448 $6,503,046 =========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,241,433 $1,110,631 Accrued expenses and other current liabilities 954,184 822,453 Debt maturing within one year 1,244 190,150 ----------- ---------- Total current liabilities 2,196,861 2,123,234

Long-term debt 557,927 567,433 Deferred income tax liability 23,314 7,563 Other long-term obligations 178,150 141,916

Stockholders' equity: Preferred stock - $.01 par value, 5,000,000 shares authorized; no shares issued - - Common stock - $.0006 par value, 2,100,000,000 shares authorized; issued 542,032,757 shares at January 29, 2005 and 527,121,843 shares at January 31, 2004 325 316 Additional paid-in capital 2,255,110 1,933,379 Cumulative foreign currency translation adjustments 114,427 81,002 Retained earnings 2,818,163 2,209,302 Less: treasury stock at cost, 45,698,391 shares at January 29, 2005 and 27,927,347 shares at January 31, 2004 (1,072,829) (561,099) ----------- ---------- Total stockholders' equity 4,115,196 3,662,900 ----------- ---------- Total liabilities and stockholders' equity $ 7,071,448 $6,503,046 =========== ==========

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

(Unaudited) 13 Weeks Ended Fiscal Year Ended ----------------------- ------------------------- January 29, January 31, January 29, January 31, 2005 2004 2005 2004 ---------- ---------- ----------- -----------

Sales $4,076,505 $3,613,192 $14,448,378 $12,967,022 Cost of goods sold and occupancy costs 2,874,296 2,544,563 10,343,643 9,468,890 ---------- ---------- ----------- ----------- Gross profit $1,202,209 1,068,629 4,104,735 3,498,132

Operating and other expenses: Operating and selling 625,983 580,295 2,348,878 2,158,125 Pre-opening 3,912 3,678 10,673 9,639 General and administrative 173,833 141,805 610,568 524,094 Amortization of intangibles 2,596 2,025 8,743 7,986 Interest and other expense, net 99 4,495 10,301 20,176 ---------- ---------- ----------- ----------- Total operating and other expenses 806,423 732,298 2,989,163 2,720,020 ---------- ---------- ----------- -----------

Income before income taxes 395,786 336,331 1,115,572 778,112 Income tax expense 144,462 124,442 407,184 287,901 ---------- ---------- ----------- ----------- Net income $ 251,324 $ 211,889 $ 708,388 $ 490,211 ========== ========== =========== ===========

Earnings Per Share:

Basic earnings per common share: $ 0.51 $ 0.43 $ 1.43 $ 1.01 ========== ========== =========== ===========

Diluted earnings per common share: $ 0.50 $ 0.42 $ 1.40 $ 0.99 ========== ========== =========== ===========

Number of shares used in computing basic earnings per common share: 494,083 493,938 494,585 483,966 ========== ========== =========== ===========

Number of shares used in computing diluted earnings per common share: 506,158 506,422 505,822 493,491 ========== ========== =========== ===========

Dividends declared and paid per common share $ - - $ 0.20 - ========== ========== =========== ===========

NOTE: Certain 2003 amounts have been reclassified to reflect changes in accounting for coupons as a result of EITF 03-10, which had no impact on net income.

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

Fiscal Year Ended -------------------------- January 29, January 31, 2005 2004 ------------ ----------- Operating Activities: Net income $ 708,388 $ 490,211 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 278,845 282,811 Deferred income tax expense (benefit) 9,083 (13,725) Other 58,283 36,434 Changes in assets and liabilities, net of companies acquired: Increase in receivables (49,786) (4,218) (Increase) decrease in merchandise inventories (63,747) 147,130 Increase in prepaid expenses and other assets (8,736) (34) Increase (decrease) in accounts payable 82,355 (27,266) Increase in accrued expenses and other liabilities 107,608 95,549 Increase in other long-term obligations 56,915 12,840 ------------ ----------- Net cash provided by operating activities 1,179,208 1,019,732

Investing Activities: Acquisition of property and equipment (335,435) (277,793) Acquisition of businesses, net of cash acquired (111,657) (2,910) Investment in joint venture (29,330) - Purchases of short-term investments (10,246,652) (9,014,125) Proceeds from the sale of short-term investments 10,708,696 8,180,025 ------------ ----------- Net cash used in investing activities (14,378) (1,114,803)

Financing Activities: Proceeds from sale of capital stock 206,394 389,793 Payments on borrowings (235,081) (325,235) Repayments under receivables securitization agreement - (25,000) Purchase of treasury stock (511,730) (4,287) Cash dividends paid (99,527) - ------------ ----------- Net cash (used in) provided by financing activities (639,944) 35,271

Effect of exchange rate changes on cash and cash equivalents 14,959 21,376

Net increase (decrease) in cash and cash equivalents 539,845 (38,424) Cash and cash equivalents at beginning of period 457,465 495,889 ------------ ----------- Cash and cash equivalents at end of period $ 997,310 $ 457,465 ============ ===========

STAPLES, INC. AND SUBSIDIARIES Segment Reporting (Dollar Amounts in Thousands)

(Unaudited) 13 Weeks Ended Fiscal Year Ended ----------------------- ------------------------- January 29, January 31, January 29, January 31, 2005 2004 2005 2004 ----------- ----------- ------------ ------------

Sales: North American Retail $2,386,659 $2,201,861 $8,324,299 $7,665,804 North American Delivery 1,122,608 947,100 4,196,882 3,702,311 International Operations 567,238 464,231 1,927,197 1,598,907 ----------- ----------- ------------ ------------ Total sales $4,076,505 $3,613,192 $14,448,378 $12,967,022 =========== =========== ============ ============

Business Unit Income: North American Retail $258,025 $220,307 $681,230 $523,612 North American Delivery 116,074 90,306 376,730 308,305 International Operations 21,786 30,213 67,913 64,346 ----------- ----------- ------------ ------------ Total business unit income $395,885 $340,826 $1,125,873 $896,263 Interest and other expense, net (99) (4,495) (10,301) (20,176) Impact of change in accounting principle - - - (97,975) ----------- ----------- ------------ ------------ Income before income taxes $395,786 $336,331 $1,115,572 $778,112 =========== =========== ============ ============

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CONTACT: Staples, Inc. Media Contact: Paul Capelli, 508-253-8530 or Deborah Hohler, 508-253-8509 or Investor Contact: Laurel Lefebvre, 508-253-4080 or Katy Nash, 508-253-7342

KEYWORD: MASSACHUSETTS INDUSTRY KEYWORD: RETAIL EARNINGS SOURCE: Staples, Inc.

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