Staples 2013 Annual Report Download - page 118

STAPLES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
B-4
The table below shows sales in 2013 compared with sales in 2012 excluding the impact of the 53rd week. For further
discussion, see below under Consolidated Performance and Segment Performance (in thousands):
Sales
Year-over-year sales growth2013 2012
52 weeks ended 53 weeks ended
52 weeks
ended
Compared to the
53 weeks ended
Compared to the
52 weeks ended
February 1,
2014
February 2,
2013 53rd week
January 26,
2013
February 2,
2013
January 26,
2013
North American Stores &
Online $ 11,103,160 $ 11,827,906 $ 221,425 $11,606,481 (6.1)% (4.3)%
North American Commercial 8,041,613 8,108,402 158,943 7,949,459 (0.8)% 1.2 %
International Operations 3,969,490 4,444,202 80,816 4,363,386 (10.7)% (9.0)%
Total $ 23,114,263 $ 24,380,510 $ 461,184 $23,919,326 (5.2)% (3.4)%
Consolidated Performance
2013 Compared with 2012
Sales: Sales for 2013 were $23.11 billion, a decrease of 5.2% from 2012. Excluding the impact of $461.2 million of
sales relating to the additional week in 2012, sales for 2013 decreased by 3.4% from 2012. Our sales decline for 2013 reflects a
4% decline in comparable store sales in North America, ongoing weakness in International Operations, a 1% impact from store
closures in North America and Europe, and a $156.6 million unfavorable impact from changes in foreign exchange rates, partially
offset by growth in our North American online businesses and in North American Commercial. Declines in office supplies, business
machines and technology accessories, ink and toner, and computers were partly offset by growth in facilities and breakroom
supplies, tablets and other mobile technology, and technology services.
Gross Profit: Gross profit as a percentage of sales was 26.1% for 2013 compared to 26.6% for 2012. The decrease in
gross profit rate was driven by lower product margins and by the negative impact of fixed costs on lower sales. The decline in
margins was primarily due to adverse mix stemming from strong top line growth in lower margin categories such as tablets
combined with a decline in higher margin categories such as office supplies, as well as pressure in core categories such as paper
and ink and toner.
Selling, General and Administrative Expenses: Selling, general and administrative expenses in 2013 decreased by $149.0
million or 3.1% from 2012. The decline was primarily driven by the impact of the additional week in 2012 and decreased
compensation expense as a result of changes in management incentive compensation and lower headcount, combined with
reductions in marketing spend and a favorable comparison to selling, general and administrative expenses in 2012, which included
significant costs associated with headcount reductions and legal settlements. These reductions were partially offset by increased
costs related to growing our online businesses. As a percentage of sales, selling, general and administrative expenses increased to
20.5% in 2013 compared to 20.0% for 2012, reflecting the negative impact of lower sales.
Impairment of goodwill and long-lived assets: There were no goodwill or long-lived asset impairment charges incurred
in 2013. Goodwill and long-lived asset impairment charges incurred in 2012 were $771.5 million and $39.5 million, respectively.
The goodwill impairment charges of $303.3 million and $468.1 million related to our Europe Retail and Europe Catalog reporting
units, respectively, which are components of our International Operations segment. The charges stemmed from a strategic decision
to reallocate investment resources to areas of the Company with higher growth potential, and they reflected lower projections for
sales growth and profitability for these businesses as a result of industry trends and the ongoing economic weakness in Europe.
The $39.5 million of long-lived asset impairment charges primarily related to the closure of 46 retail stores in Europe
and 15 retail stores in the United States, and the consolidation of several sub-scale delivery businesses in Europe. As a result of
these actions, we recorded long-lived asset impairment charges of $29.6 million and $5.1 million related to the Company's
International Operations and North American Retail segments, respectively, primarily relating to leasehold improvements and
company-owned facilities. As a result of the reduced long-term sales and profit projections, we also recorded $4.8 million of
charges related to long-lived assets held for use in ongoing operations by our Europe Retail reporting unit, primarily relating to
leasehold improvements at store locations.
Restructuring charges: As part of our continuing efforts to cut costs, we recognized charges of $78.3 million in the third
quarter of 2013 related to a plan to streamline our operations and general and administrative functions. Pursuant to this plan,
certain distributed general and administrative functions are being centralized, which we believe will help drive additional synergies