Staples 2007 Annual Report Download - page 3

Fellow Shareholders:
Staples achieved solid financial results in 2007, making progress on key objectives, investing for growth and
providing our customers with great service. We reached an important milestone with the opening of our 2000th
store, and expanded our global footprint by entering India. Staples ended the year serving customers and
businesses in 22 countries throughout North and South America, Europe, and Asia.
During 2007, after adjusting for the 53rd week in 2006 and one time items, Staples drove sales growth of 9% to
$19.4 billion and increased earnings per share by 15% to $1.42. We generated record free cash flow of more than
$890 million, after investing $470 million in capital, and returned cash to our shareholders through our dividend and
share repurchase program. During 2007, we bought back about 32 million shares of Staples stock for $750 million,
and we recently announced a $0.33 per share annual cash dividend for 2008, a 14% increase compared to the
$0.29 per share dividend we paid in 2007.
Although the retail environment in North America was weaker than we anticipated, the North American Retail team
did a good job controlling expenses to maintain strong margins despite negative comps. We drove industry leading
performance in our North American Delivery business, and strengthened our foundation for long term profitable
growth in our International business.
While the weakness in the U.S. economy has presented us with challenges, we continue to press our advantage
relying on our strengths: great people, a solid balance sheet, and sound strategies. We have taken this opportunity
to work on the things that we can control, while remaining focused on our customers, and the strong pipeline of
ideas that will drive future growth in each of our three business units.
North American Retail
Our North American Retail business is the largest and most profitable in our industry, and represented 52% of our
sales and 54% of our business unit income for 2007. Excluding the 53rd week in 2006, sales grew 3% to $10.0
billion in 2007, and operating income rate remained strong at 9.5%.
Our real estate strategy continues to be a competitive advantage. We opened 120 stores in 2007, ending the
year with 1,738 stores in North America. After successfully entering Chicago in 2005 and South Florida in 2006,
Staples entered the Denver market in 2007. At the end of the year we operated 12 stores in Denver, and we are
excited about our early success in this market. In 2008 we plan to open approximately 100 new stores in North
America. While almost half of our stores feature the easy-to-shop “Dover” format, we will open new stores with
formats that are tailored to the unique characteristics of each location. In addition to our 20,000 square foot
prototypical “Dover” superstore, we also have a 14,600 square foot format designed for rural markets, and a
10,000 square foot format suited for dense, urban markets.
Our newest store format is a 4,000 square foot stand alone Copy & Print Shop, which provides us with the
opportunity to enter high-traffic areas while addressing the fragmented quick-print market opportunity. At the end
of 2007 we had three of these stores open in the Boston area and three in Manhattan, in addition to the four we
operate in Canada. While these stores are still in the testing phase, we are encouraged by initial results, and plan
to open several more during 2008.
Our vision to be the world’s best office products company is built on the ability to differentiate ourselves and
execute better than the competition. During 2007 we launched a number of new merchandising initiatives to
enhance our product and service offering, while remaining focused on consistent execution. Successful initiatives
include our relationship with Dell, making Staples the exclusive supplier of Dell products in the office superstore
channel, “Business Cards in Minutes”, which made Staples the first national retailer to offer a way to get business
cards within minutes of being designed, as well as “Security by Staples”, a cross category initiative to help
customers protect themselves from increasing information security threats. We also saw rapid growth in our high
margin in-store copy and print business and EasyTech service, which makes it easy for customers to get support
with their hardware and software installation, data protection, security and other technology needs.
We continue to differentiate our stores with own brand products. Our own brand offering includes Staples, Quill,
and other proprietary branded products which represented approximately 22% of our total sales in 2007. Our
strategy for own brand focuses on offering national brand quality at lower prices, and we have brought to market
hundreds of innovative and exclusive products. Examples of successful own brand expansion during 2007