Recharger.com

Staples Reports Record 1Q Performance

May 16, 2006

Staples announced the results for its first quarter ended April 29, 2006. Total company sales increased nine percent to $4.2 billion compared to the first quarter of 2005. Net income rose 26 percent year over year to $186 million, and earnings per share, on a diluted basis, increased 25 percent to $0.25, from the $0.20 achieved in the first quarter of last year.

First quarter North American Retail comparable sales increased one percent versus 2005, reflecting positive customer traffic and strong comps in core supplies categories and copy and print services, offset by weaker performance in furniture and technology. Total North American Retail sales grew seven percent. North American Delivery continued its strong growth, increasing sales 17 percent versus last year. International sales rose six percent in local currency, but declined one percent in US dollars due to a $40 million negative foreign exchange impact.

"We're off to a great start in 2006, posting strong results in the first quarter," said Ron Sargent, Staples' chairman and chief executive officer. "Our associates continue to deliver the numbers and provide an easy customer shopping experience. As Staples celebrates its 20th anniversary this month, we are very proud of what we've accomplished, but even more excited about what lies ahead."

Highlights for the first quarter include:

• Total company operating income improved 79 basis points year over year to 6.7 percent, with all business units growing profits much faster than sales.
• North American Retail operating margins were 7.8 percent, up 63 basis points versus 2005, reflecting strong gross margin comps due to improved product mix, with strength in supplies and services.
• North American Delivery continues its momentum, with strong sales growth across all product categories, improving customer satisfaction scores, and a 64 basis point improvement in operating profit to 9.4 percent.
• Profits tripled in International this quarter, with operating margins of 1.9 percent, an increase of 129 basis points versus last year, reflecting early progress in the company's European turnaround.
• Inventory turns rose 15 basis points to 5.80 times.
• Staples opened two new stores in the United States, three stores in Canada, and one store in Portugal. The company now operates 1,786 stores worldwide.
• The company generated $54 million in free cash flow during the first quarter of the year after $115 million in capital expenditures.

Outlook

For the second quarter of 2006, Staples anticipates low double-digit sales growth for the total company and expects earnings per share to grow 15 to 20 percent. Given the upside achieved in the first quarter, for the full year, the company expects to be at the high end of the range of its previously stated earnings guidance of 15 to 20 percent. Earnings growth expectations for the second quarter and full year 2006 refer to 2005 earnings restated to include the impact of stock compensation expense under the Financial Accounting Standards Board's statement 123R, which the company implemented as of January 29, 2006. Pro forma restated financial statements are available on the "Financial Measures" section of the investor relations Web site on www.staples.com. The company's earnings outlook also reflects the impact of a 53rd week in fiscal 2006.