Staples 2005 Annual Report Download - page 63

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of complex state and federal regulations, and may be increasingly the target of private actions alleging violations of such
regulations. This increases the cost of doing business and the risk that our business practices could unknowingly result in
liabilities that may adversely affect our business and financial performance.
Our operating results may be impacted by changes in the economy that impact business and consumer spending.
Our operating results are directly impacted by the health of the North American, European, South American and
Asian economies. Our business and financial performance may be adversely affected by current and future economic
conditions, including unemployment levels, energy costs, interest rates, recession, inflation, the impact of natural
disasters and terrorist activities, and other matters that influence business and consumer spending.
Our business and financial performance is dependent upon our ability to attract and retain qualified associates.
Our performance is dependent on attracting and retaining a large and growing number of quality associates. We
face intense competition for qualified associates, and many of our associates are in entry-level or part-time positions with
historically high rates of turnover. Our ability to meet our labor needs generally while controlling our labor costs is
subject to numerous external factors, including the availability of a sufficient number of qualified persons in the work
force, unemployment levels, prevailing wage rates, changing demographics, health and other insurance costs and changes
in employment legislation. If we are unable to attract and retain qualified associates or our labor costs increase
significantly, our business and financial performance may be adversely affected.
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; extreme weather-
related disruptions; 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.
Our expanding international operations expose us to the unique risks inherent in foreign operations.
As of January 28, 2006, we had operations in 19 countries in Europe, South America and Asia and a significant
presence in Canada. As evidenced by our recent entry into the South American and Asian markets, we may also seek to
expand further into other international markets. Our foreign operations encounter risks similar to those faced by our
U.S. operations, as well as risks inherent in foreign operations, such as local customs and regulatory constraints, foreign
trade policies, competitive conditions, foreign currency fluctuations and unstable political and economic conditions.
Further, our recent acquisitions in Europe and South America and our investments in Asia have increased our exposure
to these foreign operating risks, which could have an adverse impact on our international income and worldwide
profitability.
Our business may be adversely affected by the actions of and risks associated with our third-party vendors.
The products we sell are sourced from a wide variety of third-party vendors. We cannot control the supply, design,
function or cost of many of the products that we offer for sale and are dependent on the availability and pricing of key
products, including without limitation paper, ink, toner and technology products. Disruptions in the availability of raw
materials used in production of these products may adversely affect our sales and result in customer dissatisfaction. In
addition, global sourcing of many of the products we sell is an important factor in our financial performance. Our ability