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Printing helps Staples profits rise 11%

Press release from the issuing company

FRAMINGHAM, Mass., August 21, 2007 -- Staples, Inc. announced today the results for its second quarter ended August 4, 2007. Total company sales increased 11 percent to $4.3 billion compared to the second quarter of 2006. Net income rose 11 percent year over year to $179 million, and earnings per share, on a diluted basis, increased 14 percent to 25 cents, from the 22 cents achieved in the second quarter of last year. Total North American Retail sales grew five percent in the second quarter. North American Retail comparable sales decreased two percent versus 2006, reflecting lower sales in furniture, supplies, and business machines partially offset by strong sales in copy and print centers, laptop computers, ink, and software. North American Delivery continued its industry-leading growth, increasing sales 16 percent versus last year’s second quarter. Total International sales increased 18 percent in US dollars, benefiting from a $39 million foreign currency impact, and increased 11 percent in local currency. International comparable sales grew seven percent versus 2006. “We are pleased to deliver double-digit top and bottom line growth while operating in a tough retail environment in North America.” said Ron Sargent, Staples’ chairman and chief executive officer. “We continue to execute well and invest in new growth ideas to achieve our sales and earnings goals.” Highlights for the second quarter include: - Total company operating income rate improved four basis points year over year to 6.54 percent. - North American Retail operating income rate was 7.43 percent, down 33 basis points versus 2006, reflecting deleverage in fixed costs resulting from a decrease in comparable store sales and investments in growth initiatives, offset by tight expense controls. - North American Delivery drove strong sales growth across all major product categories, achieved excellent service and operational execution, and improved supply chain metrics, driving a 14 basis point improvement in operating income rate to 10.66 percent. - International Operations swung to a profit in the second quarter with operating income rate improving 225 basis points. Both retail and delivery drove strong top and bottom line growth. - Staples opened 23 new stores in the United States, seven new stores in China, five new stores in Canada, one new store in Portugal and closed one store in the UK. The company now operates 1,962 stores worldwide. - Staples continued to invest in its North American Delivery network with the opening of a new tri-channel fulfillment center in Denver. - The company generated $14 million of free cash flow during the first half of the year after $206 million of capital expenditures, compared to a use of cash of $125 million for the same period last year. - Staples announced a new $1.5 billion share repurchase program and repurchased 8.1 million shares of its stock for $198 million during the quarter. Year-to-date the company has repurchased 15.3 million shares for $386 million. Outlook Staples expects to achieve earnings per share growth of approximately 15% for both the third quarter and the full year. This guidance excludes previously disclosed adjustments to 2006 earnings, for the 53rd week benefit, favorable tax events and the adjustment for prior years’ stock-based compensation. Staples anticipates low double digit sales growth for the total company in the third quarter. Staples expects slightly negative to flat same store sales and mid single-digit sales growth in North American Retail, mid-teens sales growth in North American Delivery, and low to mid single-digit retail same store sales and high single-digit sales growth in local currency in International for the third quarter. For fiscal year 2007, adjusting for the extra week in 2006, Staples anticipates low double-digit sales growth for the total company and flat same store sales for North American Retail.