Staples 2004 Annual Report Download - page 81

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STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
promise to make buying office products easy for our customers, thereby differentiating us from our competitors. The key
drivers of our 2004 results were our improved product mix directed at more profitable small business customers and
home offices, our continued focus on customer service, solid execution and expense management. Our 2004 results also
reflect strong performance in key categories, including ink and toner; copy center; and technology products, including
networking, memory, laptops and digital cameras.
We strive to maintain a balance between investing for our long-term success and delivering strong current earnings
growth. For each of the past three years, we have chosen to make significant investments to drive sustainable revenue
growth by investing in productivity improvements and better processes in such areas as store labor, supply chain,
marketing and Staples brand products. Our goal is to expand our existing businesses and develop new growth
opportunities such as: growing our copy and print center and Contract businesses; entering major new geographic
markets in North America; expanding our multi-channel offering in Europe by entering new countries; and expanding
into new geographies, as we did in 2004 in South America, eastern Europe and Asia.
We expect additional operating margin improvement to continue in fiscal 2005. As of the date of this filing, we
anticipate sales growth in fiscal 2005 to be approximately 10%, reflecting low single digit North American retail
comparable store sales. We expect earnings per share growth of approximately 15% to 18% for fiscal 2005. In the third
quarter of 2005, we plan to adopt Financial Accounting Standards Board Statement No. 123 (revised 2004), ‘‘Share
Based Payment’’ using the retrospective method, which will result in our restating our fiscal 2004 net income to $1.32 per
diluted share. The adoption of this statement is not expected to have a significant impact on these growth assumptions,
after adjusting fiscal 2004 net income to $1.32 per diluted share. 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 11.4% in fiscal 2004 to $14.45 billion versus sales of $12.97 billion in 2003. Sales in fiscal
2003 increased 11.8% compared to sales of $11.60 billion in fiscal 2002. Excluding sales of $113 million from our 2004
acquisitions, non-comparable sales from our 2002 acquisitions of $446 million in 2003 and adjusting for the pro forma
impact of reclassifying coupons under Issue 03-10 in 2002, sales increased 10.6% in 2004 and 9.8% in 2003. Comparable
sales for our North American retail locations, which include stores open for more than one year, increased 4% in 2004
and 2003 and comparable sales for our International retail locations decreased 1% in 2004 and were flat in 2003. We
operated 1,680 stores as of January 29, 2005 compared to 1,559 stores as of January 31, 2004 and 1,488 stores as of
February 1, 2003. This includes 88 stores opened and 16 stores closed during 2004, as well as the 59 Office World stores
that were acquired in August 2004 (of which 10 stores were subsequently closed during 2004), 84 stores opened and 13
stores closed during 2003 and 86 stores opened and 34 stores closed during 2002. North American Delivery sales
increased 13.4% in 2004 and 9.2% in 2003. Excluding non-comparable sales of $86 million in 2003 for MAP and
adjusting for the pro forma impact of reclassifying coupons under Issue 03-10 in 2002, North American Delivery sales
increased 8.2% in 2003. International Delivery sales increased 15.3% in 2004 and 196.5% in 2003. Excluding sales of
$23 million for our 2004 delivery acquisitions and non-comparable sales of $361 million in 2003 for our European mail
order acquisition, International Delivery sales increased 11.4% in 2004 and 17.7% in 2003. The increase in total sales
also reflects the positive impact of foreign currency rates of $265 million in 2004 and $338 million in 2003.
Our strong sales growth in 2004 reflects solid execution in key categories, including ink and toner, our copy center
business and the performance of high growth technology categories, including networking, memory, laptops and digital
cameras, which were positively impacted by product presentation and in-store execution. Our sales growth in 2003
reflects solid execution in key categories, including ink and toner, paper, business machines, our copy center business,
furniture and high growth technology categories, and strong sales during our back-to-school season and our back-to-
business selling season in January. Additionally, our sales growth in both 2004 and 2003 reflects the positive results of our
increased investment in our Contract sales force, our cross-channel marketing among our catalogs, web sites and retail
stores and increases in both customer acquisition and retention rates in our North American delivery businesses.
Gross Profit: Gross profit as a percentage of sales was 28.4% for fiscal 2004, 27.0% for fiscal 2003 and 25.4% for
fiscal 2002. On a pro forma basis to reflect the retroactive application of Issue 02-16 and Issue 03-10, gross profit was
27.7% for fiscal 2003 and 26.9% for fiscal 2002. The increase in the gross profit rate for 2004 from the pro forma gross
profit rate for 2003 reflects our continued improvement in product mix directed at more profitable business customers
B-3