Staples 2015 Annual Report Download - page 87

FORWARD-LOOKING STATEMENTS
STAPLES 9
limitations on the amount of stock they are permitted to hold
in individual issuers, may be required to sell the shares of our
common stock that they receive in the proposed merger. Such
sales of our common stock could result in higher than average
trading volume following the closing of the transaction and
may cause the market price for our common stock to decline.
Risks Related to the Business
If we fail to meet the changing needs of our customers
our business and financial performance could be
adversely affected.
We are currently engaged in a multi-year effort to evolve our
business to meet the changing needs of our customers. One
of our top priorities is to significantly expand our product and
service offerings beyond traditional core office supplies, a
category that is declining. Over the past few years we have
had success driving growth in adjacent product categories,
such as facilities supplies and breakroom supplies and
service offerings, such as our copy and print services. We
are also increasing coordination between our online business
and our retail stores. Our success is dependent on providing
our customers the selection of products, as well as services,
at competitive prices that meet customers’ changing needs
and purchasing habits. If we misjudge either the demand for
products and services we sell or our customers’ purchasing
habits and tastes, we may be faced with excess inventories
of some products or missed opportunities for products and
services we do not offer. Failure to provide the products and
services preferred by our customers could have a material
adverse effect on our revenue, results of operations and
ability to attract and retain customers.
We face uncertainties transforming our business, and
our inability to successfully implement our strategies
could adversely affect our business and financial
performance.
As part of our continuing efforts to transform our business, in
2014 we announced a plan to reduce costs by $500 million on
an annualized basis by the end of 2015. We also announced
a plan to close at least 225 of our retail stores in North
America by the end of 2015, under which we closed 242
stores through the end of 2015 and which we extended to
encompass an additional 50 closures in 2016. As a result of
these initiatives, we recorded pre-tax charges of $245 million
in fiscal 2014 and $170 million in fiscal 2015, and we expect
to incur charges of approximately $40 million - $85 million
in 2016 related to the additional store closures. Additional
charges may be required as a result of implementing our plans
or if we adopt new strategies for the future. The success of
our plans and strategies is subject to both the risks affecting
our business generally and the inherent difficulty associated
with implementing our new strategies, and is also dependent
on the skills, experience, and efforts of our management
and other associates and our success with third parties. To
the extent we pursue acquisitions or other operational and
strategic opportunities, our success will depend on selecting
the appropriate targets or partners, completing integration
efforts quickly and effectively and realizing any expected
synergies and cost savings. There is no assurance that we will
be able to successfully implement our strategic initiatives or
that the implementation of changes will result in the benefits
or costs savings at the levels that we anticipate or at all, which
may result in an adverse impact on our business and results
of operations.
In the past we have recognized significant goodwill
impairment charges and may be required to recognize
additional goodwill impairment charges in the future.
As a result of challenging industry and operating pressures,
we recorded significant goodwill impairment charges in
fiscal 2014 related to our Australia and China reporting
units. At January 30, 2016, we had $2.7 billion of goodwill
on our balance sheet. Certain factors, including consumer
and business spending levels, industry and macroeconomic
conditions, the price of our stock and the future profitability of
our businesses might have a negative impact on the carrying
value of our goodwill. The process of testing goodwill for
impairment involves numerous judgments, assumptions and
estimates made by management which inherently reflect a
high degree of uncertainty. If the business climate deteriorates,
if our plans change or if we fail to manage our restructuring
activities successfully, then actual results may not be
consistent with these judgments, assumptions and estimates,
and additional goodwill impairment charges may be required
in future periods. This could have an adverse impact on our
financial position and results of operations.
We operate in a highly competitive market and we may
not be able to continue to compete successfully.
We compete with a variety of online and traditional retailers,
dealers and distributors. Intense competitive pressures
from one or more of our competitors could affect prices or
demand for our products and services. If we are unable to
appropriately respond to these competitive pressures, or offer
the appropriate mix of products and services at competitive
prices, our financial performance and market share could be
adversely affected. As we rapidly expand our assortment of
products and services, we compete directly with an increasing
number of competitors including mass merchants such as
Walmart, Target and Tesco, warehouse clubs such as Costco,
computer and electronics retail stores such as Best Buy,
specialty technology stores such as Apple, copy and print
businesses such as FedEx Office, online retailers such as
Amazon.com, and a wide range of other retailers, including
grocery stores, drug stores and discount retailers. In addition,
our retail stores continue to compete against traditional office
supplies retail stores. Our commercial business competes
against a growing and diverse set of competitors, including
other office supplies distributors, wholesalers, networks
of regional suppliers, managed print service companies,
contract stationers, electronic commerce distributors, regional
and local dealers, direct manufacturers of the products we
distribute, and companies focused on adjacent categories
such as maintenance, repair and operation providers. Many of
our competitors have increased their presence in our historic
core product areas in recent years, for example by expanding
their assortment of office products and services, opening new
stores near our existing stores, and offering direct delivery of
office products, and we expect this trend to continue going
forward. Some of our current and potential competitors are
larger than we are, may have more experience in selling certain
products or delivering services or may have substantially
greater financial resources.