Staples, Inc. (SPLS)
Q4 2008 Earnings Call Transcript
March 11, 2009 8:00 a.m. ET

Executives

Laurel Lefebvre - Vice President, Investor Relations
Ronald L. Sargent - Chairman and Chief Executive Officer
Michael A. Miles, Jr. - President and Chief Operating Officer
Peter Ventress – President – Staples International
John J. Mahoney - Vice Chairman and Chief Financial Officer
Joseph G. Doody - President, North American Delivery
Demos Parneros - President, U.S. Stores

Analysts

Oliver Wintermantel – Morgan Stanley
Colin McGranahan - Sanford C. Bernstein & Co.
Daniel Binder - Jefferies & Co.
Kate McShane - Citigroup
Matthew Fassler - Goldman Sachs & Co.
Stephen Chick - Friedman, Billings, Ramsey & Co.
Gary Balter - Credit Suisse
Michael Baker - Deutsche Bank Securities
Joe Feldman - Telsey Advisory Group

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the fourth quarter and fiscal year 2008 Staples, Inc. earnings conference call. My name is Erica and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. If, at any time during the call you require assistance, please press “*” followed by “0” and a coordinator will be happy to assist you.

I would now like to turn the presentation over to your host for today''s call, Ms. Laurel Lefebvre, Vice President of Investor Relations. Please proceed.

Laurel Lefebvre

Good morning, everyone, and thanks for joining us for our fourth quarter and fiscal 2008 earnings announcement.

During today''s call, we''ll discuss some non-GAAP metrics and our results excluding Corporate Express to provide investors with useful information about our financial performance. Please see the Financial Measures and Other Data section of the Investor Information portion of Staples.com for an explanation and reconciliation of such measures and other calculations of financial measures that we use to analyze our business.

I''d also like to remind you that certain information in this call constitutes forward-looking statements for purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those discussed or referenced under the heading Risk Factors and elsewhere in Staples’ latest 10-K filed today.

Please also note that during the call we''ll refer to Staples'' performance excluding the impact of Corporate Express as Staples’ core business.

Here to discuss our performance and business outlook are Ron Sargent, Chairman and Chief Executive Officer, Mike Miles, President and Chief Operating Officer, Peter Ventress, President of International, and John Mahoney, Vice Chairman and Chief Financial Officer. Also joining us are Demos Parneros, President of U.S. Stores, and Joe Doody, President of North American Delivery. Ron?

Ronald L. Sargent

Thanks, Laurel, and good morning, everybody. Thanks for joining us this morning.

While 2008 was an incredibly exciting year because of the acquisition of Corporate Express, we struggled with weak sales all year long and the fourth quarter was particularly tough. In both good times and bad our job is to deliver the positive results that our shareholders expect, and while we''re not satisfied with our absolute results, our relative performance has never been stronger.

We did a great job in many aspects of the business during 2008. We aggressively managed expenses to offset lower sales. We took out costs in every line of the P&L. We tightened our capital spend, cutting almost a third of our original capital expenditure plan. We did a good job managing inventory in all channels, and we reduced inventory per store by 17%. And as a result, we generated record free cash flow of more than $1.3 billion during the year. Most importantly, we achieved our best customer service metrics ever and we continued to differentiate ourselves from the competition.

Let''s take a look at our numbers for the quarter and the full year. Sales for the fourth quarter were up 16% versus last year, to $6.2 billion. This includes $1.6 billion of Corporate Express sales. If you exclude the impact of Corporate Express, total company sales decreased about 14% or about 10% in local currency.