Staples 2004 Annual Report Download - page 3

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Fellow Shareholders:
Staples associates drove record results in 2004, exceeding our key financial targets while
making excellent progress on our strategic objectives. We grew earnings per share more
than 25%, drove sales growth of 11%, and achieved all time high operating profit margins
of 7.8%. We entered nine new countries, expanding our global footprint to 21 countries in
four continents and opening up new opportunities in fast growing markets around the
world. We made solid progress on our multi-year, company-wide initiatives: improving
customer service by making it easy for our customers to shop, making supply chain a
competitive weapon, taking Staples brand development to the next level, and developing
new growth opportunities. We also drove our return on net assets above our long term cost
of capital for the first time in our history by continuing to execute our strategies to drive
profitable sales, improve operating margins and boost asset productivity. We increased
inventory turns to 5.6 times, contributing to the $844 million in free cash flow we
generated. With ample cash to invest both to sustain growth in our core business and
develop new growth ideas, we also returned value to shareholders through a share
repurchase program and an annual cash dividend. After paying our first ever cash dividend
in 2004, we increased this dividend for 2005 by 25%. We also recently announced the
eighth three-for-two stock split in our company’s history, a reflection of our confidence in
Staples’ future.
Three Pillars of Success
We believe that driving Staples’ success for the long term is a combination of delivering
industry best execution, differentiating our brand, and expanding our market leadership.
We made significant progress during 2004 along each of these three dimensions:
Execution:
Consistent execution in all areas of our business has been the hallmark of Staples’ success.
Our people are focused on doing the basics extremely well, day after day. Nowhere is this
more apparent than in our accomplishments in customer service. We have raised standards
across the chain and have seen steady progress driven by associate training and support.
We have delivered measurable improvement in customer service scores through a unique
compensation program for hourly associates and an enhanced service model in our North
American Retail business, and through continued focus on our perfect order metric in our
North American Delivery business. At the same time, we’ve been focused on carefully
managing expenses, including reducing shrink, implementing better energy management
practices and developing more efficient store labor models and scheduling tools.
An important example of this strong execution is our Summit supply chain initiative,
where we’re heading into the final phase of this three year program. In addition to steady