Staples 2013 Annual Report Download - page 115

STAPLES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
B-1
General
Our fiscal year is the 52 or 53 weeks ending on the Saturday closest to January 31. Fiscal year 2013 ("2013") consisted
of the 52 weeks ended February 1, 2014, fiscal year 2012 ("2012") consisted of the 53 weeks ended February 2, 2013 and fiscal
year 2011 ("2011") consisted of the 52 weeks ended January 28, 2012.
Results of Operations
Major contributors to our 2013 results, as compared to the results for 2012, which includes the impact of the 53rd week
in that fiscal year, are reviewed in detail in the Consolidated Performance and Segment Performance discussions and are summarized
below:
• We generated $23.11 billion in sales, a decrease of 5.2%;
• North American Stores & Online sales decreased 6.1% and business unit income rate decreased to 6.6% from 8.3%;
• North American Commercial sales decreased 0.8% and business unit income rate decreased to 7.5% from 8.4%;
• International Operations sales decreased 10.7%, while business unit loss rate was (0.4)% compared to (0.5)%;
• Income (loss) from continuing operations attributable to Staples Inc. was $707.0 million for 2013 compared with $(160.7)
million in 2012;
• Non-GAAP income from continuing operations attributed to Staples, Inc. was $760.6 million in 2013 compared with
non-GAAP income from continuing operations of $936.1 million in 2012; and
• Earnings (loss) per diluted share from continuing operations attributable to Staples, Inc. was $1.07 in 2013 compared to
$(0.24) in 2012. Non-GAAP earnings per diluted share from continuing operations was $1.16 in 2013 compared with $1.39
in 2012.
See the non-GAAP reconciliations in the "Non-GAAP Measures" section further below.
Outlook
The performance of our retail stores has consistently fallen short of our expectations over the past few years, and we
continue to see customer demand shifting online. As a result of these trends, we are developing a plan to close up to 225 stores
in North America by the end of 2015. We expect that these closures will improve the performance of our retail portfolio, as we
increase our focus on growing our online businesses.
As part of our continuing efforts to transform our business, we are also developing a multi-year cost savings plan which
is expected to generate annualized pre-tax cost savings of approximately $500 million by the end of 2015. The savings are expected
to come from supply chain, retail store closures and labor optimization, non-product related costs, IT hardware and services,
marketing, sales force, and customer service. We plan to reinvest some of these savings in our reinvention initiatives.
In addition to the initiatives outlined above, we will continue to execute other elements of our plan to reinvent Staples,
such as investing to drive growth online and in categories beyond office supplies, and reshaping and restructuring underperforming
parts of our business. As a result of our reinvention, Staples is going up against new competitors in new markets. Our traditional
markets, meanwhile, are evolving due to declines in consumption of office supplies, and the industry is undergoing consolidation,
which presents both opportunities and risks. As a result of these changes, the long-term trends in our business have become harder
to predict, and therefore we are evolving our guidance practices and will no longer be providing annual sales and earnings per
share guidance. Instead, we will help investors and other stakeholders understand our near-term expectations with quarterly
financial guidance. For the first quarter of 2014, we expect total Company sales to decrease versus the first quarter of 2013. We
expect to achieve diluted earnings per share in the range of $0.17 to $0.22 for the first quarter of 2014. Our guidance for the first
quarter of 2014 excludes any potential impact on sales or earnings associated with restructuring activities in 2014. The company
also expects to generate more than $600 million of free cash flow for fiscal year 2014, which reflects cash payments related to
previously announced restructuring activities as well as our consideration of the potential impact of restructuring activities in 2014.