STAPLES:69,000 EMPLOYEES….1.786 STORES

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Date: Wednesday May 17, 2006 10:01:00 am
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    Staples 1Q Earnings Increase 26 Percent
    BOSTON
    – Staples Inc. said Tuesday its first-quarter profit rose 26 percent on
    gains in its office products delivery business and overseas
    operations.But the world’s largest office products retailer reported
    disappointing sales growth at its North American stores, and investors
    sent Staples’ shares down 6 percent.Staples said net income for the
    three-month period ended April 29 rose to $186.1 million, or 25 cents
    per share, from a profit of $147.7 million, or 20 cents per share, in
    the same quarter a year ago. Sales rose 9 percent to $4.24 billion from
    $3.9 billion a year ago.The most recent quarter’s profit beat the
    consensus forecast of 23 cents a share by analysts surveyed by Thomson
    Financial, and the sales result fell just shy of analysts’ forecast of
    $4.26 billion.Framingham-based Staples said first-quarter sales edged
    upward 1 percent at North American stores open at least a year, the
    company’s smallest such increase since 2002’s third quarter. Ron
    Sargent, Staples’ chief executive and chairman, told analysts in a
    conference call that the result was “a bit disappointing,” but said the
    company’s core North American store business remains healthy.Weaker
    sales of furniture and office technologies such as computers were
    offset by growth in customer traffic, rising sales of core items
    including binders and ink cartridges, and increased use of copy and
    print services.Staples’ shares fell $1.60 to close at $24.82 on the
    Nasdaq Stock Market, where the stock has traded in a 52-week range of
    $19.78 to $27.71.AG Edwards & Sons analyst Brian Postol said
    investors were reacting to Staples’ small North American sales
    increase, and worries that consumers are putting off purchases of
    big-ticket items like office furniture and computers.”People may be
    concerned given the rise in interest rates and gas prices, and they may
    be feeling pinched a little at this time,” Postol said.Staples’
    international sales rose 6 percent based on local currency values, but
    dipped 1 percent in dollars when accounting for the dollar’s value
    compared with foreign currencies.International profits tripled in the
    quarter from $3.5 million to $10.5 million, “reflecting early progress
    in the company’s European turnaround,” Staples said. The company has
    recently been hurt by a slow economy in Europe and costs to integrate
    new operations there, especially in the United Kingdom.Staples’ profit
    in its North American retail business rose 16 percent to $180 million,
    with its North American delivery profit growing 25 percent to $130
    million.Rising paper costs are pressuring the profitability of Staples’
    delivery business, but the company said it expects to pass the higher
    costs to customers by boosting paper prices.The 69,000-employee company
    opened just five new North American stores in the first quarter, for a
    total of 1,786 stores in 21 countries.Despite the slow pace of
    first-quarter store openings, the 20-year-old company remains on track
    to meet its goal of 100 new stores for the full year, with the pace of
    openings accelerating in coming quarters. Staples’ biggest new market
    is the Chicago area, where it added 25 stores last year.Staples
    continued to post stronger profits than its chief rivals in the first
    quarter. Delray Beach, Fla.-based Office Depot last month reported a 12
    percent increase in its first-quarter profit, to nearly $130 million.
    Itasca, Ill.-based OfficeMax Inc. posted a $25 million loss as costs
    from closing more than 100 stores hurt results.Staples expects
    second-quarter sales growth in the low double-digits on a percentage
    basis, and earnings per share growth of 15 percent to 20 percent. For
    the full year, Staples expects earnings to grow at the high end of the
    company’s previously stated range of 15 percent to 20 percent.Those
    profit projections are slightly higher than analysts’ forecasts for a
    second-quarter profit of 22 cents per share and a full-year profit of
    $1.25 per share

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