Staples, Inc. Reports Record Sales and Earnings For Fourth Quarter and Fiscal 2006

Staples, Inc. (NASDAQ:SPLS) announced today the results for its fourth quarter (14 weeks) and fiscal year (53 weeks) ended February 3, 2007. Total company sales for the fourth quarter grew 18 percent to $5.3 billion compared to the same quarter of 2005. North American Retail revenues increased 14 percent and North American Delivery sales increased 24 percent. International sales grew 16 percent in local currency or 27 percent in US dollars. Total company net income of $336 million rose 22 percent, and earnings per share of $0.46, on a diluted basis, rose 24 percent compared to the fourth quarter of 2005. North American Retail comparable store sales, calculated on a 13 week basis, rose one percent versus last year and, in Europe, comparable store sales increased five percent. Excluding $370 million of total company sales during the extra week in the fourth quarter, sales increased 10 percent compared to last year. Excluding North American Retail sales of $210 million and North American Delivery sales of $129 million during the extra week in the fourth quarter, North American Retail sales increased six percent and North American Delivery revenues increased 14 percent. Excluding International sales of $31 million during the extra week in the fourth quarter, sales grew 11 percent in local currency or 22 percent in US dollars. For fiscal year 2006, sales reached $18.2 billion, a 13 percent increase compared to 2005. Full year North American Retail sales rose 10 percent and North American Delivery revenues increased 19 percent. In 2006, e-commerce sales of $4.9 billion increased 28 percent versus last year. International sales rose 10 percent in local currency or 13 percent in US dollars. The company reported 2006 net income of $974 million, a 24 percent increase versus last year. Earnings per share of $1.32, on a diluted basis, rose 27 percent versus 2005. Adjusted for the impact of favorable tax events and the correction for prior years’ stock-based compensation reported in the third quarter, earning per share were $1.28. Both North American Retail and European comparable store sales, calculated on a 52 week basis, increased three percent for the year. The company generated $637 million in free cash flow after $528 million in capital expenditures. Excluding the 53rd week in 2006, total company sales increased 11 percent versus last year. Excluding the extra week, North American Retail sales increased eight percent, North American Delivery revenues increased 16 percent, and International sales grew eight percent in local currency, or 11 percent in US dollars. "Our 74,000 associates delivered another terrific year in 2006,” said Ron Sargent, Staples’ chairman and CEO. "We drove strong top and bottom line growth, while investing in new ideas and making steady progress on the key initiatives that will continue to drive our business.” Key company accomplishments in 2006: Total Company FY2006 total company operating margin increased 38 basis points to 8.1 percent. Inventory turns increased 16 basis points to 5.92 times, continuing to demonstrate the benefits of the Summit supply chain program. Staples’ own brand products reached 20 percent of sales for the year and the company established a long-term goal to reach 30 percent of sales. Staples branded aisles are featured in more than 2,400 grocery stores throughout the US, including more than 1,500 Safeway locations. North American Retail FY2006 operating margin in North American Retail increased 30 basis points to 9.6 percent. In Q4, the company experienced positive customer traffic and solid performance in key categories, such as office supplies, ink, and copy & print. Staples opened 99 stores in 2006, including 23 stores in new markets and three stand alone Copy & Print shops in the Boston area. The company ended the year with 1,620 stores in North America. The company re-launched and re-branded its technology services initiative, EasyTech. Every Staples store in the US offers an in-store technician to help customers with services such as hardware and software installations, data protection, and security. North American Delivery FY2006 operating margin in North American Delivery increased 40 basis points to 10.7 percent. The company continues to increase sales to existing customers through "share of wallet” initiatives. North American Delivery added capabilities in IT products and services, and expanded its assortment of industrial packaging supplies through its strategic acquisitions of Thrive Networks and Chiswick. Staples opened three fulfillment centers in 2006, in Atlanta, Orlando, and Chicago. In 2007, Staples plans to open a new fulfillment center in Denver. International International operations improved operating margin by 149 basis points to 2.1 percent for the full year. New advertising and direct mail campaigns are showing positive results in European retail. In Q4, Staples’ comparable store sales in European retail rose five percent, with five percent comparable store sales in the UK, its best quarterly comp performance since 2003. In Q4 and FY2006, Staples European Catalog drove strong sales and doubled operating margin, with particularly solid improvement in France and Italy. The company announced a joint venture in India with Pantaloon Retail Limited, and plans to acquire Pei Pei, a chain of office products retail stores in the Jiangsu province near Shanghai, China. The company also announced an annual cash dividend of $0.29 per share payable on April 19, 2007, to shareholders of record on March 30, 2007. This represents a 32 percent increase versus 2006. "With great people, solid execution, and many new growth ideas, Staples is well positioned to continue to build on our success in 2007,” said Sargent. Q1 2007 Outlook The company expects to achieve high single-digit growth on the top line and a positive, low single-digit comparable store sales increase in North American Retail. Staples expects mid single-digit sales growth in North American Retail, with the calendar shift resulting from the 53rd week in 2006 reducing sales growth expectations by approximately two percentage points. Staples anticipates mid-teens growth in North American Delivery, and high single-digit sales growth in local currency in International. The company expects to achieve earnings per share growth of 15 to 20 percent. FY2007 Outlook The company’s guidance for 2007 is based on comparison to 2006 performance adjusted for the 53rd week, the third quarter earnings per share impact of favorable tax events, and the correction for prior years’ stock-based compensation. Excluding these items, the company expects earnings per share growth of 15 to 20 percent for the full year 2007, equating to a range of $1.43 to $1.49 of earnings per share, or eight to 13 percent earnings growth on a GAAP basis. Excluding the extra week, Staples expects low double-digit sales growth for the total company, or high single-digit sales growth on a GAAP basis. Staples expects a positive, low single-digit comparable sales increase in North American Retail. Excluding the additional week in 2006, the company expects to grow North American Delivery revenues in the mid-teens, or low-teens on a GAAP basis, and in International, Staples expects low double-digit growth in local currency. Presentation of Non-GAAP Information This press release presents earnings per share results both with and without the favorable tax events and stock based compensation correction described above and certain comparable period measures that exclude the 53rd week in fiscal 2006. The presentation of results that exclude these items are non-GAAP financial measures that should be considered in addition to, and should not be considered superior to or as a substitute for, the presentation of results determined in accordance with GAAP. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are provided below under the heading "Reconciliation of GAAP to Non-GAAP Financial Measures.” Management believes that the non-GAAP financial measures presented in this press release provide a more meaningful comparison of the company’s year-over-year performance. Management also uses these non-GAAP financial measures to evaluate the company’s core operating results against plan, to compare the company’s performance to that of its competitors, and to provide earnings guidance to the investing community. Today's Conference Call The company will host a conference call today at 8:00 a.m. (ET) to review these results and its outlook. Investors may listen to the call at http://investor.staples.com. About Staples Staples, Inc. invented the office superstore concept in 1986 and today is the world's largest office products company. With 74,000 talented associates, the company is committed to making it easy to buy a wide range of office products, including supplies, technology, furniture, and business services. With 2006 sales of $18.2 billion, Staples serves consumers and businesses ranging from home-based businesses to Fortune 500 companies in 21 countries throughout North and South America, Europe and Asia. Headquartered outside of Boston, Staples operates approximately 1,900 office superstores and also serves its customers through mail order catalog, e-commerce and contract businesses. More information is available at www.staples.com. Staples in Europe In Europe, Staples operates through 2 major distribution channels : Staples superstores and the delivery business with Staples Europe Catalogue . Staples employs near 9 000 people in 16 countries. Staples in Europe operate strong brands Strong European Brands Staples European Retail operates with Staples Brand in UK, Germany and Portugal, with Office Centre in the Netherlands and Belgium, and with Office World in UK Staples Europe Catalogue operates with several brands : JPG and Bernard in France, Belgium and Luxembourg, Mondoffice in Italy, STAPLES and Neat-ideas in Great Britain, STAPLES and Pressel in Germany, Pressel in France, Belgium and Switzerland, Kalamazoo in Spain and Quill Kontorslagret in Sweden , Pressel Quill in Austria, in The Czech Republic, in Hungary, and in Poland, Malling Beck in Denmark, JPG Quill and Pressel in the Netherlands Certain information contained in this news release constitutes forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995 including, but not limited to, the information set forth under the headings "Q1 2007 Outlook” and "FY2007 Outlook” and other statements regarding our future business and financial performance. Actual results may differ materially from those indicated by such forward-looking statements as a result of risks and uncertainties, including but not limited to: our market is highly competitive and we may not continue to compete successfully; we may be unable to continue to open new stores and enter new markets successfully; our growth may continue to strain operations, which could 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 business and financial performance is dependent upon our ability to attract and retain qualified associates; our stock price may fluctuate based on market expectations; our quarterly operating results are subject to significant fluctuation; our expanding international operations expose us to the unique risks inherent in foreign operations; our business may be adversely affected by the actions of and risks associated with our third party vendors; our expanded offering of proprietary branded products may not improve our financial performance and may expose us to product liability claims; our debt level and operating lease commitments could impact our ability to obtain future financing and continue our growth strategy; fluctuations in our effective tax rate may adversely affect our business and results of operations; compromises of our information security may adversely affect our business; a California wage and hour class action lawsuit may adversely affect our business and financial performance; and those other factors discussed or referenced in our most recent annual report on Form 10-K filed with the SEC, under the heading "Risk Factors” and elsewhere, and any subsequent periodic reports filed by us with the SEC. In addition, any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.