Staples, Inc. Reports Record First Quarter Performance; Earnings Per Share Rose 25 Percent and Company Sales Increased Nine Percent

Business Wire, May 16, 2006

FRAMINGHAM, Mass. -- Staples, Inc. (Nasdaq: SPLS) announced today 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 website on www.staples.com. The company's earnings outlook also reflects the impact of a 53rd week in fiscal 2006.

About Staples

Staples, Inc. invented the office superstore concept in 1986 and today is the world's largest office products company. With 69,000 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 2005 sales of $16.1 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 1,786 office superstores and also serves its customers through mail order catalog, e-commerce and contract businesses. More information is available at www.staples.com.

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 heading "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 results; 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 and are impacted by the extent to which sales in new stores result in the loss of sales in existing stores, the mix of products sold, pricing actions of competitors, the level of advertising and promotional expenses, extreme weather-related disruptions and seasonality; 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; 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 quarterly report on Form 10-Q for the quarter ended April 29, 2006, 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.