Staples 2004 Annual Report Download - page 84

STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
North American Retail: Sales increased 8.6% in fiscal 2004 and 7.0% in fiscal 2003. Adjusting for the pro forma
impact of reclassifying coupons under Issue 03-10 in 2002, sales increased 9.1% in 2003. Comparable store sales in North
America increased 4% in 2004 and 2003. Our growth in fiscal 2004 primarily reflects our comparable store sales growth,
as well as non-comparable store sales for stores opened in 2003 and the net addition of 68 stores during fiscal 2004. The
increase in sales also includes the positive impact of the Canadian exchange rate to the U.S. dollar of $98 million. 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 growth in fiscal 2003 was the result
of our comparable store sales growth, as well as non-comparable store sales for stores opened in 2002 and the net
addition of 58 stores during fiscal 2003. Our growth for fiscal 2003 primarily reflects strong performance in ink and toner,
paper, business machines and our copy center business, as well as improvements in furniture and high growth technology
categories. This growth was fueled by strong sales during our back-to-school season and our back-to-business selling
season in January.
Business unit income as a percentage of sales increased to 8.2% in 2004 from 6.8% in 2003 and 5.8% for 2002. The
increase in business unit income during 2004 primarily reflects our continued improvement in product mix directed at
more profitable business customers and home offices, our continued focus on higher margin Staples brand products,
strong results in our copy center business and supply chain initiatives which lower the cost of moving the product from
our vendors through to our customers. This increase also reflects continued improvements in expense management, solid
execution, our focus on customer service and leveraging of fixed expenses on higher sales. The increase in business unit
income during 2003 primarily reflects our focus on expense management, leveraging of rent and occupancy and other
fixed expenses on higher sales and improvements in shrink. The increase also reflects improved product mix and more
focused marketing spend directed at more profitable small business customers and home offices, our focus on higher
margin Staples brand products and better buying. We also benefited from the positive impact of foreign exchange rates in
both 2004 and 2003. Going forward, we will continue to focus on our ‘‘Easy’’ brand promise, customer service, supply
chain improvements and our Staples brand products, as we believe that these are key to our success. We plan to identify
and develop new growth opportunities, such as expanding our copy center business, entering a new major market in
Chicago, Illinois and exploring new retail channels such as selling to grocery store chains.
North American Delivery: Sales increased 13.4% in fiscal 2004 and 9.2% in fiscal 2003. Excluding non-comparable
sales from the acquisition of MAP and adjusting for the pro forma impact of reclassifying coupons under Issue 03-10
in 2002, sales increased 8.2% in fiscal 2003. The sales growth in both years reflects the increased investment in our
Contract sales force; the positive results of marketing among our catalogs, web sites and retail stores; more efficient
marketing driving higher sales per marketing dollar; and the continued success of our customer acquisition and retention
efforts resulting from improved service levels.
Business unit income as a percentage of sales increased to 9.0% in 2004 from 8.3% for 2003 and 7.8% for 2002. The
increase in fiscal 2004 reflects more efficient marketing spend, continued increases in the number of orders placed
electronically, fewer problem orders, productivity improvements in our supply chain, and leveraging of fixed expenses on
higher sales, partially offset by the increased investment in our Contract sales force. The increase in 2003 reflects an
increase in the number of orders placed electronically, an increase in average order size, continued productivity in our
operations and fewer problem orders. Additionally, our fiscal 2003 results reflect leveraging of marketing costs and fixed
expenses on higher sales. Going forward, we will focus on growing sales in all of our delivery businesses and believe we
have an opportunity to enhance operating margins in Staples Business Delivery and Contract to approach the level of
Quill, our most profitable division.
International Operations: Sales increased 20.5% in fiscal 2004 and 53.7% in fiscal 2003. Excluding the 2004
acquisitions and non-comparable sales from our 2002 European mail order acquisition, sales increased 13.5% in 2004
and 19.0% in fiscal 2003. Comparable store sales in Europe decreased 1% in 2004 and were flat in fiscal 2003. The sales
increase in 2004 and 2003 primarily reflects the positive impact of an increase in European exchange rates against the
U.S. dollar of $157 million and $151 million, respectively, combined with non-comparable store sales for stores opened in
the past twelve months and increased sales in our delivery businesses.
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