Staples 2006 Annual Report Download - page 99

STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
B-5
performance in portable computers, computer peripherals, office supplies, our copy and print center business and office
machines.
Business unit income as a percentage of sales increased to 9.6% in 2006 from 9.3% in 2005 and 8.5% in 2004. The
increase in business unit income for 2006 primarily reflects increased sales in higher margin categories including copy
and print services, office supplies, Staples brand products as well as supply chain initiatives which lower the cost of
moving product from our vendors to our customers, expense management and leveraging of fixed expenses on higher
sales including the added leverage from the 53rd week of sales. Our 2006 results were partially offset by planned
investments in marketing. The increase in business unit income for 2005 reflects the continued positive impact of targeting
our product mix and marketing at more profitable small businesses and home offices, strong results in our copy and print
center business, our continued focus on higher margin Staples brand products and supply chain initiatives which lower the
cost of moving product from our vendors to our customers. The increase for 2005 also reflects continued improvements in
expense management, leveraging of fixed expenses on higher sales and our focus on customer service. Our 2005 results were
partially offset by planned investments for long-term growth including labor and marketing to grow our copy and print
center business and investments in our Chicago market entry. We also benefited from the positive impact of foreign
exchange rates in both 2006 and 2005. Going forward, we will continue to focus on our “Easy” brand promise, customer
service and our Staples brand products, as we believe that these are key to our success. We expect that we will continue to
expand our copy and print center business and enter new geographic markets as well as explore new growth ideas including
selling office products through other retail channels and developing innovative products.
North American Delivery: Sales increased 18.6% in fiscal 2006 and 17.8% in fiscal 2005. Sales for 2006 include
$128.5 million related to the additional week in 2006. Excluding the additional week in fiscal 2006, sales increased 16.0%.
The sales growth reflects the continued success of our customer acquisition and retention efforts, increased penetration
of existing customers and more effective marketing spend. The sales growth in 2005 reflects the increased investment in
our expanded Contract sales force, more efficient and targeted marketing spend and the continued success of our
customer acquisition and retention efforts as well as increased penetration of existing customers.
Business unit income as a percentage of sales increased to 10.7% in 2006 from 10.3% in 2005 and 9.4% in 2004. The
increase in 2006 primarily reflects more efficient and effective marketing spend; our continued focus on higher margin
Staples brand products; our supply chain efforts focused on improving our perfect order metric, decreasing the number
of trips per order and lowering our reliance on wholesalers; continued increases in the number of orders placed
electronically; and leveraging of fixed expenses on higher sales, partially offset by the costs associated with the opening of
three new fulfillment centers in 2006. The increase for 2005 reflects our continued focus on higher margin Staples brand
products, supply chain efforts focused on improving our perfect order metric and lowering our reliance on wholesalers,
continued increases in the number of orders placed electronically, leveraging of fixed expenses on higher sales as well as
more efficient and effective marketing spend. During 2007, we will focus on growing sales in all of our delivery businesses
and continuing to improve profits through our supply chain programs, penetration of existing customers and driving service
improvements.
International Operations: Sales increased 12.6% in fiscal 2006 and 8.7% in fiscal 2005. Sales for 2006 include $31.1
million related to the additional week in 2006. Excluding the additional week in fiscal 2006, sales increased 11.1% and
excluding non-comparable sales from our 2004 acquisitions and Staples China of $211.7 million, sales decreased 2.2% in
2005. Comparable store sales in Europe increased 3% in 2006 and were flat in 2005. The sales growth in 2006 reflects
growth in local currency in our International delivery businesses, the positive impact of foreign exchange rates to the U.S.
dollar of $61 million, the increase in comparable store sales as well as non-comparable store sales for stores opened in
2006. The sales decrease in 2005 primarily reflects lower sales in our retail business in the United Kingdom and our
delivery business in France as well as a decrease in European exchange rates against the U.S. dollar of $29 million.