Staples 2003 Annual Report Download - page 53

STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Results of Operations
We have provided below a summary of our operating results at the consolidated level, followed by an overview of
our segment performance.
Consolidated Performance:
General: The following table is a summary of our net income for each of the past three fiscal years:
2002 2001 2000
Net income excluding the following items ............................... $417,100 $306,919 $261,184
Less (items net of applicable taxes):
Inventory write-down for store closures (included in cost of goods sold) ....... — 4,551 —
Store closure charge (credit) ....................................... — 30,807 (4,278)
Asset impairment and other charges(1) ............................... — 6,591 205,750
Tax benefit ................................................... (29,000) — —
Net income as reported (GAAP) ..................................... $446,100 $264,970 $ 59,712
(1) While the 2000 and 2001 amounts are both categorized as asset impairment and other charges, the 2000 amount
relates to the asset impairment of Staples Communications and certain e-commerce investments, and the 2001
amount relates to severance and facility closures.
Management uses net income excluding the items noted in the table above, among other standards, to measure
operating performance. We have added this information because we believe it assists you in understanding our results of
operations on a comparative basis. This supplements, and is not intended to represent a measure of performance in
accordance with, disclosures required by accounting principles generally accepted in the United States (‘‘GAAP’’). See
the discussion below for an explanation of the items included in the table above.
Excluding the items noted in the table above, net income grew 36% for fiscal year 2002 and 18% for fiscal 2001.
Fiscal year 2002 was a year of improved performance as our Back to Brighton strategy of focusing on driving profitable
sales growth, improving profit margins and increasing asset productivity positively impacted our results. This strategy
includes a shift to focus our merchandising, marketing and customer service on small businesses and power users. Our
performance has been achieved despite the absence of robust comparable sales growth. Even in this tough economic
environment, comparable sales continue to show sequential improvement, with most of the growth in consumables,
which includes our core supply categories. This comparable sales growth, however, has been offset by a general weakness
in our customers capital spending resulting in a negative impact on purchases of non-consumables, which include our
technology and furniture categories.
We strive to maintain a balance between investing for our long term success and delivering strong current earnings
growth. During 2002, we chose to make significant investments to drive sustainable revenue growth by investing in
productivity improvements and better processes in such areas as store labor, sales force, marketing and supply chain.
Fiscal year 2002 was a year of transformation for us. In executing our Back to Brighton strategy we drove significant,
sustainable, structural shifts throughout our business which we believe will continue to drive our sales and earnings
growth in 2003. The most significant of these shifts include: a shift in customer base to more profitable business
customers and power users versus consumers; improvements in customer service and our easy brand promise; improved
new store productivity and our in-fill focused real estate strategy; our Dover store format; an increase in our private label
mix; growing our more profitable delivery business faster than our retail business; our increased global presence in new
European countries, addressing the large, attractive and growing European market; and the acquisition of businesses
with a more profitable business model.
As many of the initiatives we are executing are just beginning to positively impact our results, we expect additional
operating margin improvement to continue in fiscal year 2003, independent of top line growth. As of the date of this
filing, we anticipate organic sales growth in fiscal 2003 to be in the mid to high single digits with an additional two to
three percent growth from our 2002 acquisitions. This sales growth implies low single digit North American retail
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