Staples 2006 Annual Report Download - page 96

STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
B-2
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. Our discussion includes our results presented on the basis required by accounting principles
generally accepted in the United States (“GAAP”).
Consolidated Performance and Outlook:
Net income for 2006 was $973.7 million or $1.32 per diluted share compared to $784.1 million or $1.04 per diluted
share for 2005 and $664.6 million or $0.87 per diluted share for 2004. Net income increased 24% for 2006 and 18% for
2005. Our results for 2006 include a $33.3 million ($0.05 per diluted share) reduction in income taxes related to the
favorable resolution of certain foreign and domestic tax matters and an $8.6 million charge, net of taxes ($0.01 per
diluted share) to correct the measurement dates used to calculate prior years’ stock-based compensation (see Note H).
In addition, our results for 2006 include the impact of the 53rd week on net earnings of approximately $0.04 per diluted
share.
We achieved the results for 2006 by continuing to execute our strategy of driving profitable sales growth, improving
profit margins and increasing asset productivity. This includes delivering on our “Easy” brand promise to make buying
office products easy for our customers in order to differentiate us from our competitors. Our commitment to customer
service, our focus on higher margin Staples brand products, strong results in our copy and print center business, the
continued success of our customer acquisition and retention efforts, increased penetration of existing customers, supply
chain improvements and expense management were also key drivers of our results in 2006.
We strive to maintain a balance between investing for our long-term growth and delivering strong current earnings
growth. For each of the past three years, we have chosen to make significant investments to drive sustainable earnings
growth by investing in productivity improvements and better processes in such areas as store labor, supply chain,
marketing and Staples brand products. We are expanding our market share by continuing to grow our existing businesses
as well as developing new growth ideas and strengthening our global presence. Initiatives to expand our existing
businesses include growing the copy and print center business, growing our delivery businesses and entering new
geographic markets. New growth ideas include selling office products through additional retail channels, experimenting
with new store formats such as stand-alone copy and print shops, and developing innovative products. To strengthen our
global presence, we are investing in our existing businesses in Europe and making targeted investments in high growth
markets in Asia and South America, which we expect to become meaningful contributors to our long-term growth.
We expect operating income improvement to continue in fiscal 2007. As of the date of this filing, we anticipate sales
growth in fiscal 2007 to be in the high single digits on a GAAP basis inlcuding the 53rd week of sales in 2006, reflecting
low single digit North American retail comparable store sales. We expect earnings per share growth of approximately 8%
to 13% for fiscal 2007 compared to GAAP earnings in 2006, which included the benefit from the 53rd week, the favorable
resolution of certain tax matters and the charge associated with prior year’s stock-based compensation. As with all
forward looking statements made in this Annual Report on Form 10-K, we do not intend to update publicly any of the
forward-looking statements in this paragraph.
Sales: Sales increased 12.9% in fiscal 2006 and 11.3% in fiscal 2005. Sales for 2006 include $369.8 million related to
the additional week in 2006. Excluding the additional week in 2006, sales increased 10.6%. Excluding non-comparable
sales from our 2004 acquisitions of $212 million in 2005, sales increased 9.8% in 2005. Comparable sales for our North
American retail locations, which include stores open for more than one year and exclude sales related to the additional
week in 2006, increased 3% in both 2006 and 2005 and comparable sales for our International retail locations increased
3% in 2006 and were flat in 2005. We had a net addition of 104 stores in 2006 and a net addition of 100 stores in 2005,
and a net addition of 121 stores in 2004, including the 59 Office World stores that were acquired in August 2004 (of
which 10 stores were subsequently closed during 2004 and 3 stores were closed during 2005). North American Delivery
sales increased 18.6% in fiscal 2006 and 17.8% in 2005. Sales for 2006 include $128.5 million related to the additional
week in 2006. Excluding the additional week in 2006, sales increased 16.0% in 2006. The increase in total sales also
reflects the positive impact of foreign currency rates of $185 million in 2006 and $104 million in 2005.