Year-to-Date Financial Highlights

- The company is ahead of last year with free cash flow of $533 million versus $277 million in 2006.
Cap Ex came in at $316 million, down from the $352 million spent for the same period in 2006, primarily reflecting decreased investment in fulfillment centers, partially offset by increased investment in new stores.
- With operating cash flow of $849 million, the company generated $533 million in free cash flow. Free cash flow was $519 million.
- Return on net assets improved to 14%, up 20 basis points compared to the end of the third quarter a year ago. This includes a 30 basis point negative impact from a legal settlement.

Fourth Quarter 2007 Outlook

- Excluding the impact of the extra week in Q4 2006, the company expects low double-digit total company sales growth, a flat to negative comparable store sales and high single-digit sales growth in North American Retail business, mid-teens growth in North American Delivery business, and high single-digit sales growth in local currency in international.
- As a result, the company expects to achieve Q4 and full year EPS growth of approximately 15%, excluding the extra week in 2006 and special items in 2006 and 2007.

Fiscal 2007 Outlook

- The company expects about $550 million in capital expenditures and more than $800 million in free cash flow.
- The company remains cautious about the economic climate driving the weak sales trends seen throughout 2007 and expects this to continue for at least the first half of 2008. For the year, the company expects to achieve high single-digit sales growth for the total company, a low single-digit comparable store sales in North American Retail, low to mid-teens revenue growth in North American Delivery, low double-digit sales growth in local currency in international, and low teens EPS growth.

- The company continues to gain share and it expects the industry to grow faster than GDP. As a result, long-term expectations remain unchanged. The company expects to return to 15% to 20% EPS growth driven by 10% to 15% sales growth with operating margins expanding to 10% and RONA continuing to improve as the economy returns to a more normal pattern.
- The company is on track to open about 120 stores in North America. New stores in Miami and Denver are doing well, and in 2008 the company expects to open about 100 stores, including several standalone copy and print shops.

Key questions and answers from the third quarter fiscal 2007 earnings call conducted by Staples, Inc. on November 27, 2007.

Brian Nagel (UBS): You had the biggest gross margin improvement in several quarters. What changed in the quarter versus the prior quarters as far as drivers of gross margin?

Ron Sargent: Mix got better and consumables comped positively versus durables that comped negatively and we make a lot more money on the consumables side than we do on the durables side. Canada helped us on the gross margin as well.

John Mahoney: Across the board we did a good job on gross margin. Canada''s margin helped our North American retail business. The improvements we have seen in supply chain areas helped as well; we are cycling against the new facilities that came online last year in our NAD business, and they have improved and are helping show improvement in our gross profit year over year in that business. Our international businesses as well have done a nice job of tending to all the elements of their margin, both in terms of the mix of product that they drive, less technology, as well as doing some nice things in supply chain and buying to help see their margin improve as well.

Brian Nagel (UBS): You had negative 3% retail comparables. Your competitors talked about a more challenging back-to-school season. Did back-to-school weigh disproportionately upon the comparables in the quarter?

Mike Miles: I thought our back-to-school was solid. The issue for us in the comparables was in those durable categories. This was our second year of doing the Hot Buys and some of those penny items that drove a lot of traffic and we felt like we have that promotional strategy well worked out. Some of our competitors were getting into that for the first time, it was our second time around for that and it led to us having a successful back-to-school; to the extent you can say anything was real successful in a quarter when you had a negative 3 comparable.

Chris Horvers (Bear Stearns): Delivery did soften in all three segments. Is that something that was at an increasing rate in the quarter in each month?

Ron Sargent: It was choppy so there were no trend lines to the comparables in the third quarter. Back-to-school, which happened in the first half of the quarter, was okay but it was not anything that got us to the positive comparables. There was no real trend down or up, it was choppy depending on the week. That is true of our North American Delivery business as well.

Chris Horvers (Bear Stearns): The retail comparables estimate for the fourth quarter is up to zero to down 1 versus negative 3. Is that a comparison or is that also something you are seeing in momentum?

Ron Sargent: When you look at the two-year trend, it is about the same. This quarter we had a comparison against a 4 last year and in the fourth quarter our comparable is a 1%. We are not assuming we are going to get a lot better, we are not assuming we are going to get a lot worse. That is why we came up with that zero to 1 for the expectations for the fourth quarter.

John Mahoney: The team in North American Retail has worked hard with the merchandising initiatives and a better plan for holiday. Last year we felt we were disappointed with our holiday sales and we expect that we are going in with a lot of things that customers are going to find attractive.

Chris Horvers (Bear Stearns): You saw a general softening third versus second quarter on the North American Delivery comparable but it was not incrementally worse in each month of the quarter. Is that fair?

Joe Doody: Yes, that is generally fair. It is choppy week to week and throughout the quarter. We saw a softening all the way around. We are satisfied with our account acquisition, satisfied with our account retention. Just in general, fewer orders from our customers throughout the quarter.