Staples 2004 Annual Report Download - page 90

STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
compete with other high-volume office supply chains such as Office Depot and OfficeMax that are similar in concept to
us in terms of pricing strategy and product selections, as well as mass merchants such as Wal-Mart, warehouse clubs,
computer and electronic superstores such as Best Buy, and other discount retailers. In addition, both our retail stores
and delivery operations compete with numerous mail order firms, contract stationer businesses, electronic commerce
distributors, local dealers and direct manufacturers, such as Dell. Many of our competitors have increased their presence
in our markets in recent years. Some of our current and potential competitors are larger than we are and have
substantially greater financial resources. It is possible that increased competition or improved performance by our
competitors may reduce our market share, may reduce our profit margin, and may adversely affect our business and
financial performance in other ways.
We may be unable to continue to open new stores and enter new markets successfully. An important part of our
business plan is to increase our number of stores and enter new geographic markets. We opened 88 stores during fiscal
2004 and currently plan to open approximately 110 new stores in fiscal 2005, with a major new market entry in Chicago,
Illinois. For our growth strategy to be successful, we must identify and lease favorable store sites, hire and train associates
and adapt management and operational systems to meet the needs of our expanded operations. These tasks may be
difficult to accomplish successfully. If we are unable to open new stores as quickly as planned, our future sales and profits
could be materially adversely affected. Even if we succeed in opening new stores, these new stores may not achieve the
same sales or profit levels as our existing stores. Also, our expansion strategy includes opening new stores in markets
where we already have a presence so we can take advantage of economies of scale in marketing, distribution and
supervision costs. However, these new stores may result in the loss of sales in existing stores in nearby areas.
Our growth may continue to strain operations, which could adversely affect our business and financial results. Our
business has grown dramatically over the past several years through organic growth and through the acquisition of
Medical Arts Press, Inc., the European mail order businesses and Office World. Accordingly, sales, number of stores,
number of countries in which we conduct business and number of associates have grown. This growth has placed
significant demands on management and operational systems. If we are not successful in upgrading our operational and
financial systems, expanding our management team and increasing and effectively managing our associate base, this
growth is likely to result in operational inefficiencies and ineffective management of the business and associates, which
will in turn adversely affect our business and financial performance.
Our operating results may be impacted by changes in the economy. Our operating results are directly impacted by the
health of the North American, European and South American economies. Current economic conditions may adversely
affect our business and our results of operations.
Our stock price may fluctuate based on market expectations. The public trading of our stock is based in large part on
market expectations that our business will continue to grow and that we will achieve certain levels of net income. If the
securities analysts that regularly follow our stock lower their rating or lower their projections for future growth and
financial performance, the market price of our stock is likely to drop significantly. In addition, if our quarterly financial
performance does not meet the expectations of securities analysts, our stock price would likely decline. The decrease in
the stock price may be disproportionate to the shortfall in our financial performance.
Our quarterly operating results are subject to significant fluctuation. Our operating results have fluctuated from
quarter to quarter in the past, and we expect that they will continue to do so in the future. Our earnings may not continue
to grow at rates similar to the growth rates achieved in recent years and may fall short of either a prior fiscal period or
investors’ expectations. Factors that could cause these quarterly fluctuations include the following: the extent to which
sales in new stores result in the loss of sales in existing stores; the mix of products sold; pricing actions of competitors; the
level of advertising and promotional expenses; and seasonality, primarily because the sales and profitability of our stores
are typically slightly lower in the first and second quarter of the fiscal year than in other quarters. Most of our operating
expenses, such as rent expense, advertising expense and employee salaries, do not vary directly with the amount of sales
and are difficult to adjust in the short term. As a result, if sales in a particular quarter are below expectations for that
quarter, we may not proportionately reduce operating expenses for that quarter, and therefore such a sales shortfall
would have a disproportionate effect on our net income for the quarter.
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