Staples 2003 Annual Report Download - page 2

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Letter To Shareholders:
Staples achieved exceptional results in 2002, demonstrating the power of our people united
behind a winning strategy. At the end of 2001, we developed a simple, three-part
improvement plan and combined it with our strategy to focus on our small business
customer base. We named this plan “Back to Brighton” after our very first store in
Brighton, Massachusetts, opened in 1986 with a mission to serve small business customers.
Back to Brighton is an on-going plan to drive profitable sales, improve operating margins,
and increase asset productivity, while at the same time investing in our future. During the
course of 2002, we made solid progress in each leg of this plan:
•We grew sales by 8% to $11.6 billion, and both top line growth and comparable store
sales accelerated throughout the year;
•We expanded our operating margins from 4.8% in 2001 to 5.9% in 2002, and grew
earnings per share 33% to $0.88 (on a GAAP basis, earnings per share grew 65% to
$0.94, due to a one-time tax benefit in 2002 and certain charges in 2001); and
•We drove return on net assets up more than 146 basis points, exceeding our current cost
of capital, and underscoring our relentless focus on improving returns.
We made significant investments to drive sustainable top line growth, in areas like labor,
sales force, marketing, and supply chain. Our results in improving our business came not so
much from cost cutting, as from driving productivity improvements and better processes.
We succeeded in striking a healthy balance between investing for our long-term success and
delivering strong earnings growth for the year.
2002 was an important year for Staples, but not only in terms of the strong financial and
operational performance we achieved. Even more significant were the changes we made in
our business model. We made several structural changes that fundamentally transform our
business and give us sustainable momentum for the future. These changes were evident in
the performance of each of our business units:
North American Retail:
Despite a difficult environment, we grew sales 4% and improved earnings 29% versus our
2001 results. Our “Back to Brighton” strategy created several important shifts in our
business model. We shifted our customer mix to selling more to small businesses and
reducing our reliance on less profitable casual consumers. We changed our product mix
from selling lower margin, consumer-oriented products to a richer mix of business-focused
products and services, including a stronger focus on our high margin copy and print center.
We also increased our focus on selling Staples branded product, growing total unit volume,
boosting margins, and enhancing customer loyalty. We refined our real estate strategy,
transitioning from a focus on new market entries to adding “in-fill” stores to existing