Staples 2003 Annual Report Download - page 62

STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
substantially greater financial resources. It is possible that increased competition or improved performance by our
competitors may reduce our market share, may reduce our profit margin, and may adversely affect our business and
financial performance in other ways.
We may be unable to continue to open new stores successfully. An important part of our business plan is to increase
our number of stores. We opened 86 stores during fiscal 2002 and currently plan to open up to 110 new stores in fiscal
2003. For our growth strategy to be successful, we must identify and lease favorable store sites, hire and train employees
and adapt management and operational systems to meet the needs of our expanded operations. These tasks may be
difficult to accomplish successfully. If we are unable to open new stores as quickly as planned, our future sales and profits
could be materially adversely affected. Even if we succeed in opening new stores, these new stores may not achieve the
same sales or profit levels as our existing stores. Also, our expansion strategy includes opening new stores in markets
where we already have a presence so we can take advantage of economies of scale in marketing, distribution and
supervision costs. However, these new stores may result in the loss of sales in existing stores in nearby areas.
Our Dover format store may not be successful. In 2001, we experimented with a new store format called the Dover
format, which was designed to appeal to customer shopping preferences, open up the interior of the store and give the
customer a better view of the products we offer. At February 1, 2003, we had 263 stores in the Dover format and plan to
remodel up to 50 additional stores and open our new stores in the United States in this format in fiscal 2003. The
reformatted stores and new stores based on the Dover format have only a limited operating history, and we cannot
guarantee that the Dover stores will be successful or that they will generate sufficient additional revenue to justify the
investment.
Our growth may continue to strain operations, which could adversely affect our business and financial results. Despite
the recent decline in the rate of our growth and our planned slower store growth strategy, our business, including sales,
number of stores, investment in Staples.com and number of employees, has grown dramatically over the past several
years. In addition, we recently completed the acquisition of Medical Arts Press, Inc. and the European mail order
businesses and may make additional acquisitions in the future. This growth has placed significant demands on
management and operational systems. If we are not successful in upgrading our operational and financial systems,
expanding our management team and increasing and effectively managing our employee base, this growth is likely to
result in operational inefficiencies and ineffective management of the business and employees, which will in turn
adversely affect our business and financial performance.
Our quarterly operating results are subject to significant fluctuation. Our operating results have fluctuated from
quarter to quarter in the past, and we expect that they will continue to do so in the future. Our earnings may not continue
to grow at rates similar to the growth rates achieved in recent years and may fall short of either a prior fiscal period or
investors’ expectations. Factors that could cause these quarterly fluctuations include the following: 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, primarily because the sales and profitability of our stores
are typically slightly lower in the first and second quarter of the fiscal year than in other quarters. Most of our operating
expenses, such as rent expense, advertising expense and employee salaries, do not vary directly with the amount of sales
and are difficult to adjust in the short term. As a result, if sales in a particular quarter are below expectations for that
quarter, we may not proportionately reduce operating expenses for that quarter, and therefore this sales shortfall would
have a disproportionate effect on our net income for the quarter.
Our operating results may be impacted by changes in the economy and international conflict. Our operating results are
directly impacted by the health of the North American and European economies. Current economic conditions and the
prospect of a possible war with Iraq may adversely affect our business and our results of operations.
Our stock price may fluctuate based on market expectations. The public trading of our stock is based in large part on
market expectations that our business will continue to grow and that we will achieve certain levels of net income. If the
securities analysts that regularly follow our stock lower their rating or lower their projections for future growth and
financial performance, the market price of our stock is likely to drop significantly. In addition, if our quarterly financial
performance does not meet the expectations of securities analysts, our stock price would likely decline. The decrease in
the stock price may be disproportionate to the shortfall in our financial performance.
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