Staples 2003 Annual Report Download - page 54

STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
comparable store sales. We expect earnings per share growth of 20% for fiscal 2003. 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 7.9% in fiscal 2002, to $11.60 billion, versus sales of $10.74 billion in fiscal 2001. Sales in
fiscal 2001 increased 0.7% compared to sales of $10.67 billion in fiscal 2000. Excluding the impact of our acquisitions in
2002, sales increased 5.7% in 2002. Excluding the additional week in fiscal 2000, sales increased 2.8% in fiscal 2001.
Worldwide comparable sales increased 2% in 2002 and decreased 2% in 2001. Worldwide comparable sales include
stores open for more than one year plus the Staples Business Delivery business and the Staples catalog business in
Europe. Worldwide comparable sales for our retail locations increased 1% in 2002 and decreased 4% in 2001.
The increase in sales for both years is primarily attributable to new stores and the continued success of our customer
acquisition efforts in our delivery businesses. The increase in sales in 2002 also includes positive comparable store sales
in our core office product categories, including ink and toner, paper and copiers and business machines, offset by
declines in our technology and furniture categories; the positive results of cross-channel marketing among our catalogs,
websites and stores; and increases in foreign exchange rates against the U.S. dollar. The increase in sales in 2001 was
offset by the negative impact of the weak economy, including sharp declines in spending on computers, decreases in
foreign exchange rates against the U.S. dollar, and the impact of the terrorist attacks in the United States on
September 11th.
Gross Profit: Gross profit as a percentage of sales was 25.4% for fiscal 2002, 23.9% for fiscal 2001 and 24.1% for
fiscal 2000. The increase in the gross profit rate for 2002 was primarily due to a shift in sales mix toward higher margin
consumable categories as well as the impact of the acquired businesses in 2002 which have higher margins, as a
percentage of sales, than our other businesses. The slight decrease in the gross profit rate for 2001 was due to the
deleveraging of fixed distribution, delivery and rent and occupancy costs, clearance activity related to the elimination of
several hundred SKUs during our 300 store reflow initiative and mark-downs on PCs and furniture during the first half of
2001. The 2001 gross profit rate was also negatively impacted by a $7.4 million charge to write down inventory to net
realizable value for the 31 stores which were closed and liquidated during the first quarter of fiscal 2002. These decreases
were partially offset by strong margins from an improved product mix during the second half of 2001 and improved
control of shrink costs throughout fiscal 2001.
Operating and Selling Expenses: Operating and selling expenses, which consist of payroll, advertising and other
operating expenses, were 15.5% of sales for fiscal 2002 and 15.4% of sales for fiscal 2001 and 2000. The 2002 results
reflect increased investments in our sales force at Quill and Staples Business Delivery, as well as the impact of the
acquired businesses in 2002 which have higher marketing costs, as a percentage of sales, than our other businesses. Our
2002 results also reflect a $14.7 million charge relating to integration costs associated with our European mail order
acquisition, six store closures in Germany and severance relating to reorganizations of our European corporate
functions. Our ability to effectively leverage operating expenses offset these increases in 2002. The 2001 results reflect
the effective management of operating costs despite softer sales and the benefits of expense leveraging in our
e-commerce businesses.
Pre-opening expenses: Pre-opening expenses relating to new store openings, consisting primarily of salaries,
supplies, marketing and distribution costs, are expensed by us as incurred and therefore fluctuate from period to period
depending on the timing and number of new store openings. Pre-opening expenses were $8.7 million for the 86 stores
opened in fiscal 2002, $13.7 million for the 136 stores opened in fiscal 2001 and $22.3 million for the 189 stores opened in
fiscal 2000. The expense in fiscal 2000 reflects increased costs associated with the number of stores opened in remote
locations during that year.
General and Administrative: General and administrative expenses as a percentage of sales were 3.9% for fiscal
2002, 3.5% for fiscal 2001, and 3.8% for fiscal 2000. The increase in general and administrative expenses as a percentage
of sales in 2002 primarily reflects an increase in management’s variable compensation. The decrease as a percentage of
sales in 2001 reflects the results of the divestiture on April 3, 2002 of Staples Communications, which had high general
and administrative costs as a percentage of sales, the benefits of expense leveraging in our e-commerce businesses, a
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