Staples Reports Lower Fiscal Q3

FRAMINGHAM, MASS. — Staples reported 5 percent lower net earnings while sales increased 9 percent for its third quarter that ended Nov. 3.

Total company sales increased 9 percent to $5.2 billion compared with the third quarter of 2006. Net income, on a GAAP basis, declined 5 percent year-over-year to $275 million, and net income on a pro forma basis grew 13 percent to $299 million.

Third-quarter 2007 earnings results reflect a pretax charge of $38 million ($24 million after-tax) related to the previously disclosed settlement of California wage and hour class-action litigation. Third-quarter 2006 earnings results reflected a lower tax rate due to the previously disclosed favorable resolution of certain tax matters, and a correction for prior years' stock-based compensation.

"While the economic environment in North America remains challenging, we are pleased to deliver profitable growth." said Ron Sargent, Staples' chairman/CEO. "We are executing well, doing the right things for our customers, and investing for the future. We have built a balanced portfolio of businesses that continues to deliver solid results."

North American retail sales grew 3 percent in the third quarter, and comp-store sales decreased 3 percent vs. 2006, reflecting lower sales in business machines, furniture and computers, partially offset by strong sales in copy and print centers and positive sales in core office supplies.

North American delivery continued its growth, increasing sales 15 percent over last year's third quarter. Total international sales increased 18 percent in dollars, benefiting from a $55 million foreign currency impact, and increased 8 percent in local currency. International comp-store sales were flat vs. 2006.

Among highlights for the third quarter, Staples mentioned:

? North American retail operating income rate was 11.12 percent, up 23 basis points vs. 2006, reflecting a favorable mix as well as tight expense controls.

? North American delivery drove strong sales growth across all major product categories and improved supply-chain metrics, driving a 21 basis point improvement in operating income rate to 10.85 percent.

? Staples reached a significant milestone with the opening of its 2,000th store. In addition it opened 37 new stores in the United States, six new stores in Canada, one new store in The Netherlands and closed one store in the United Kingdom. Staples opened two new stores and one Staples UPS Express joint venture store in China. Staples now operates 2,008 stores worldwide.

Staples anticipates low double-digit sales growth for the total company in the fourth quarter. It expects flat to slightly negative same-store sales and high single-digit sales growth in North American retail, mid-teens sales growth in North American delivery and high single-digit sales growth in local currency internationally for the fourth quarter.