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Staples, Inc. Announces Second Quarter 2013 Performance

Staples, Inc. (Nasdaq: SPLS) announced today the results for its second quarter ended August 3, 2013. Total company sales for the second quarter of 2013 were $5.3 billion, a decrease of two percent compared to the second quarter of 2012. Second quarter 2013 total company sales growth was negatively impacted by approximately one percent due to 103 store closures in North America and Europe during the 12 months preceding the second quarter of 2013.

Second quarter 2013 operating income rate declined 65 basis points versus the second quarter of 2012 to 3.53 percent. This decrease primarily reflects lower product margins, the negative impact of fixed expenses on lower sales, and investments related to the company’s strategic initiatives. The company reported second quarter 2013 income from continuing operations of $104 million, or $0.16 per diluted share, compared to $125 million, or $0.19 per diluted share, during the second quarter of 2012.

“We continue to make progress on our strategic plan to reinvent Staples,” said Ron Sargent, Staples’ chairman and chief executive officer. “We drove online sales growth and aggressively managed expenses during the second quarter, but this progress was offset by weakness in our retail stores and international businesses.”

The company generated operating cash flow of $348 million and invested $124 million in capital expenditures year to date, resulting in free cash flow of $224 million for the first half of 2013, an increase of $93 million compared to the first half of 2012. The company repurchased 6.4 million shares for $100 million during the second quarter of 2013. At the end of the second quarter, the company had $2.3 billion in liquidity, including $1.2 billion in cash and cash equivalents.

North American Stores and Online                  
    Second Quarter
(dollar amounts in millions) 2013     2012     Change
Sales $2,422 $2,480 (2.3%)
Comparable store sales (3%)
 
Operating income $100 $131 ($32)
Operating income rate     4.1%     5.3%     (118 basis points)
 

Sales for the second quarter of 2013 were $2.4 billion, a decrease of two percent compared to the second quarter of 2012. Second quarter 2013 sales growth was negatively impacted by approximately one percent due to 54 store closures during the 12 months preceding the second quarter of 2013, net of estimated sales transfers to remaining stores. The sales decline also reflects weakness in business machines and technology accessories, ink and toner, and computers, partially offset by growth in tablets, facilities and breakroom supplies, and copy and print services. Comparable store sales, which exclude sales in Staples.com, decreased three percent, reflecting a two percent decline in traffic, and a one percent decline in average order size versus the prior year. Staples.com sales grew three percent during the second quarter of 2013. Operating income rate decreased 118 basis points to 4.12 percent compared to the second quarter of 2012. This decline primarily reflects lower product margins, increased costs related to growth initiatives in Staples.com, and the negative impact of fixed expenses on lower sales, partially offset by reduced retail store labor expense. During the second quarter of 2013, the company closed six stores and opened one store in the U.S. and closed four stores in Canada.

North American Commercial                  
    Second Quarter
(dollar amounts in millions) 2013     2012     Change
Sales $1,946 $1,922 1.3%
 
Operating income $128 $143 ($15)
Operating income rate     6.6%     7.4%     (85 basis points)
 

Sales for the second quarter of 2013 were $1.9 billion, an increase of one percent compared to the second quarter of 2012. This primarily reflects growth in facilities and breakroom supplies, furniture and tablets, partially offset by declines in office supplies and print solutions. Operating income rate decreased 85 basis points to 6.59 percent compared to the second quarter of 2012. This decline primarily reflects increased sales force and marketing costs to drive growth, partially offset by reduced legal expense.

International Operations                  
    Second Quarter
(dollar amounts in millions) 2013     2012     Change
Sales $946 $1,032 (8.3%)
 
Operating (loss) income ($20) ($15) ($4)
Operating (loss) income rate     (2.1%)     (1.5%)     (60 basis points)
 

Sales in International Operations for the second quarter of 2013 were $946 million, a decrease of eight percent in U.S. dollars, as well as on a local currency basis, compared to the second quarter of 2012. The sales decline reflects broad-based weakness in Europe and Australia. Second quarter 2013 sales growth was also negatively impacted by approximately two percent due to 49 European store closures during the 12 months preceding the second quarter of 2013. Comparable store sales in Europe declined six percent with lower traffic driving the majority of the decline versus the prior year. Operating income rate decreased 60 basis points to an operating loss of 2.07 percent compared to the second quarter of 2012. This decline primarily reflects the negative impact of fixed expenses on lower sales and lower product margins in the company’s European delivery businesses and Australia, partially offset by reduced marketing expense and savings related to headcount reductions in Europe and Australia.

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