Staples 2007 Annual Report Download - page 100

STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
office products easy for our customers in order to differentiate us from our competitors. Our commitment to customer
service, focus on higher margin Staples brand products, strong results in our copy and print center business, the
continued success of our customer acquisition efforts, and expense control drove our results in 2007.
We strive to maintain a balance between investing for our long-term growth, and delivering strong current earnings
growth. We continue to expand our market share by growing our existing businesses, developing new growth ideas, and
strengthening our global presence. Initiatives to grow our existing businesses include: focusing on our copy and print
centers and our delivery businesses; broadening our product and service offerings; and entering new geographic markets.
New growth ideas include 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 potential markets in Asia and South America, which we expect to become
meaningful contributors to our long-term growth.
Assuming a return to a healthy economic environment, our long term expectations are to grow sales 10 - 15% and to
grow earnings per share 15 - 20%. Amid the current weak economic climate in North America and anticipation that the
European economy may soften further, we are more cautious about our sales and earnings prospects for 2008. While
maintaining our focus on expense control, we are also continuing to invest in new strategic initiatives and customer
service programs to ensure our long term success. As of the date of this filing, we anticipate sales in fiscal 2008 to grow in
the mid single digits, and we expect earnings per share to grow in the low double digits compared to GAAP earnings per
share in 2007, which include the impact of the California wage and hour class action litigation settlement. Our guidance
for future periods excludes any potential impact relating to our previously announced proposal to acquire all the
outstanding ordinary shares of Corporate Express. 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 6.7% in fiscal 2007 and 12.9% in fiscal 2006. Sales for 2006 include $369.8 million related to
the additional week in 2006. Excluding the additional week in 2006, sales increased 8.9% in 2007 and 10.6% in 2006.
Comparable sales for our North American Retail locations decreased 3% in 2007 and increased 3% in 2006 and
comparable sales for our International retail locations increased 2% in 2007 and 3% in 2006. We had a net addition of
154 stores in 2007, a net addition of 104 stores in 2006, and a net addition of 100 stores in 2005. North American Delivery
sales increased 11.9% in fiscal 2007 and 19.0% in 2006. North American Delivery’s sales for 2006 include $129.6 million
related to the additional week in 2006. Excluding the additional week, sales increased 14.4% in 2007 and 16.3% in 2006.
Total International sales increased 16.1% in fiscal 2007 and 12.6% in 2006.
Our sales growth in both 2007 and 2006 primarily reflects increases in sales of core office supplies, ink and toner,
paper, computers, and our copy and print center business, our continued focus on customer service, and the continued
success of our customer acquisition and retention efforts in our North American Delivery business. The increase in total
sales also reflects the positive impact of foreign currency rates of $404 million in 2007 and $185 million in 2006.
Gross Profit: Gross profit as a percentage of sales was 28.7% for fiscal 2007, 28.6% for fiscal 2006 and 28.5% for
fiscal 2005. The increase in the gross profit rate for 2007 from 2006 is primarily due to an improvement in product
margin rate in our North American Retail and International segments along with improvements in North American
Delivery supply chain, partially offset by deleverage in fixed occupancy costs on a decrease in comparable store sales in
North American Retail. The increase in the gross profit rate for 2006 from 2005 reflects increased sales in higher margin
categories including office supplies, copy and print services and Staples brand products as well as supply chain
efficiencies. Our positive 2006 results were partially offset by the costs associated with the opening of our new fulfillment
centers.
Operating and Selling Expenses: Operating and selling expenses, which consist of payroll, advertising and other
operating expenses, were 16.2% of sales for fiscal 2007 and fiscal 2006, and 16.5% of sales for fiscal 2005. Operating
expenses as a percentage of sales were flat for 2007, primarily reflecting our continued focus on process improvement
and expense control, and lower variable compensation, offset by deleverage in fixed expenses on decreasing comparable
store sales in North American Retail and the added leverage of the 53rd week in fiscal 2006. The decrease in operating
expenses as a percentage of sales for 2006 primarily reflects focus on process improvement and expense control, and
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