North America Equity Research

25 September 2012

Overweight

Staples

SPLS, SPLS US
Price: $12.35

Long Road Ahead But New Mindset Reflects a

Greater Sense of Urgency

Price Target: $14.00

Staples announced its strategic restructuring plan to better serve customers and
accelerate growth focusing on five key priorities: (1) online growth, (2)
multichannel retail, (3) retail productivity, (4) restructuring international, and (5)
stakeholder returns. Overall, we believe the plan addresses many of the
underperforming areas of the company and attacks some of the larger structural
concerns (i.e., store footprint and product relevance vs. declining paper
consumption). We believe the efforts in International represent another area of
potential cost savings above the $250MM target, and expect the European plan to
continue to develop with some regions exited and more store closures. This plan
is not a pure cost cutting to greater profitability story, however, as a portion of
the identified $250MM savings program will be reinvested into category
expansion, price, customer service, and potentially small acquisitions. Hence, we
believe the pressure in the stock today is mainly attributable to a perceived lack of
immediate P&L benefit, the removal of what was a potential negative catalyst
to the structural short thesis, and a sales environment that remains quite
challenging. In our view, while this reaction reflects the near term realities of the
business, it also undersells the significant mindset change at SPLS (as best
reflected by a new found willingness to more aggressively close stores in the
U.S.).
$250MM cost savings to fund investments; a portion flows to the bottom
line. SPLS is still determining exactly how much of the $250 million will flow
through to the bottom line as the company hones in on where investments are
needed to increase relevancy to the customer, invest in price, and streamline
operations. The $250MM is largely driven from indirect costs, sourcing,
efficiency, and better technology usage. Note, the 15 NAR stores that are to be
closed are profitable (though included in the net $250MM).

Retailing Hardlines
Christopher Horvers, CFA
l ll

AC

ll

Mark A Becks
l ll

ll
l

Rachel Stubins
l ll

ll
l

J.P. Morgan Securities LLC

Price Performance
16
$

14
12
10
Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

SPLS share price ($)

S&P500 (rebased)

Abs
Rel

YTD
-13.1%
-27.2%

1m
13.8%
10.6%

3m
-3.1%
-12.2%

12m
-8.1%
-33.4%

International cost savings bucket still forming: PSD $10MM, Stores

$25MM+. With SPLS just working with work councils and the strategic plan in
International still forming, we expect a cost bucket to emerge out of this
division. Note Printing Systems is estimated to lose ~$10MM annually ($0.01
in EPS) and the 45 store closures (while expensive given the remaining lease
life) could add another $25MM+. Looking forward, we expect more store
closures and exiting of certain geographies on the catalog side.
Staples (SPLS;SPLS US)
FYE Jan
EPS Reported ($)
Q1 (Apr)
Q2 (Jul)
Q3 (Oct)
Q4 (Jan)
FY
Bloomberg EPS FY ($)
P/E FY
EV/EBITDA FY

2011A

2012A

2013E

0.28
0.22
0.47
0.41
1.37
1.37
9.0
4.2

0.30
0.18
0.45
0.44
1.37
1.37
9.0
4.5

1.40
1.43
8.8
-

Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ bn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End Date

12.35
24 Sep 12
16.93 - 10.57
8.51
Jan
689
14.00
31 Dec 13

Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg
consensus estimates.

See page 7 for analyst certification and important disclosures.

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, users should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report.
This material was originally prepared by a J.P. Morgan entity (as identified in the material) in connection with its business and is being
provided to you as a courtesy in a modified format only for informational and educational purposes (not investment purposes), and on a
delayed basis.

www.jpmorganintelligence.com
www.jpmorganintelligence.com

Christopher Horvers, CFA

l ll
ll

North America Equity Research

25 September 2012

ODP/OMX remain on notice. As discussed in our recent note, we believe a

refocused SPLS that has the opportunity to step up its domestic investments and
broadly invest in price is a negative for its competition over time. We believe the
reduced International platform and cost cuts are the funding mechanisms. Thus,
while ODP and OMX are outperforming Staples today on the 15% footage
reduction plan, bigger picture, after being somewhat complacent about its
challenges, SPLS newfound focus raises the stakes in the industry, in our view.
NAR surprise: 15% footage reduction by 2015. Staples expects to close an
additional 15 stores this year (net 30 closures and 30 reductions) with a 15% square
footage reduction by 2015. We note that the incremental closures this year come at
a higher exit cost given the long remaining lease term (similar to the 45 largely UK
locations). While some of the stores will be relocated to smaller boxes, simple
math suggests that this represents nearly 300 of the companys ~1,900 NA store
base. Said differently, this represents 50-60% of the 500-550 stores for renewal
over the next three years, representing a significant change in perspective from
management who has heretofore sworn off a larger store downsizing.
International: 45 store closures, sub scale delivery businesses, and European
printing systems on the block. SPLS also announced the plan to close 45
international stores (we believe mostly in the UK), several small scale delivery
businesses, and sell its European Printing Systems business. Unlike the NA
business, no 2015 plan was unveiled but we believe this is simply due to the greater
complexity surrounding international, regulatory discussions, and new management
changes.

2
This material was originally prepared by a J.P. Morgan entity (as identified in the material) in connection with its business and is being
provided to you as a courtesy in a modified format only for informational and educational purposes (not investment purposes), and on a
delayed basis.

Christopher Horvers, CFA

l ll
ll

North America Equity Research

25 September 2012

Investment Thesis
Maintain Overweight on Optionality. Our rating reflects (1) SPLSs market share
leadership; (2) the companys high correlation to a potential economic rebound; (3)
the potential earnings power in a stronger economic environment given high
incremental margins in the business, and (4) discounted valuation. For SPLS, higher
sales growth should drive accelerating margin progression and expense leverage,
ultimately leading to upward earnings revisions. We believe this scenario, however,
is nearly 100% dependent on the economy barring more structural changes.

Valuation
SPLS is currently trading at 8x and 8x FY12 and FY13, respectively. We are
maintaining our $14 price target to reflect ~10x PE using our 2013 forecast, which
represents a discount to its historical average and our coverage universe (this equates
to 5x EV/EBITDA). We believe this valuation is justified given the relatively lower
growth profile, secular pressures facing the industry, and uncertainty surrounding
international profitability. However, in a more robust recovery, we still believe there
is potential upside to our multiple and earnings estimates the double threat for
stock price performance.
Valuation Matrix
2011

2012E

2013E

EPS

$1.37

$1.37

$1.40

PE

8.6x

8.6x

8.5x

18.0x

16.0x

Hist Av g
Hist Trough
Hist Peak
EBITDA
EV/EBITDA

$2,110.5
4.4x

8.0x

9.0x

25.0x

22.7x

$1,997.7

$1,964.3

4.6x

4.7x

Hist Av g

8.5x

7.5x

Hist Trough

5.0x

4.0x

10.6x

9.6x

Hist Peak
Price Target
PE
EV/EBITDA
Upside/Downside

$14.00
10.2x

10.2x

10.0x

5.0x

4.8x

4.7x
19%

Source: J.P. Morgan estimates, Bloomberg.

This material was originally prepared by a J.P. Morgan entity (as identified in the material) in connection with its business and is being
provided to you as a courtesy in a modified format only for informational and educational purposes (not investment purposes), and on a
delayed basis.

Christopher Horvers, CFA

l ll
ll

North America Equity Research

25 September 2012

Coverage Matrix
Ticker
PE
2013E
VSI
24.0x
TSCO
22.3x
COST
22.3x
PETM
18.4x
HD
18.1x
DKS
17.6x
ORLY
16.0x
WSM
15.6x
LOW
15.1x
GPC
14.2x
GNC
13.9x
WMT
13.9x
TGT
13.3x
AZO
13.0x
BBBY
12.1x
AAP
11.9x
OMX
10.5x
SPLS
8.4x
HGG
7.4x
ODP
NM
RSH
NM
Average
15.2x
Median
14.2x

Ticker
TSCO
VSI
HD
COST
ORLY
GNC
PETM
AZO
GPC
DKS
LOW
WMT
TGT
BBBY
WSM
AAP
SPLS
ODP
OMX
HGG
RSH
Average
Median

EV / EBITDA
2013E
11.6x
11.5x
10.0x
9.4x
9.4x
9.2x
8.8x
8.8x
8.5x
8.4x
8.2x
8.0x
7.8x
6.7x
6.6x
6.1x
4.7x
4.4x
3.4x
2.8x
1.1x
7.7x
8.3x

Ticker
SPLS
COST
WSM
GPC
AAP
PETM
HD
WMT
VSI
TGT
TSCO
DKS
ORLY
BBBY
HGG
AZO
GNC
ODP
OMX
RSH
LOW
Average
Median

PEG
Ratio
3.9
2.2
1.8
1.8
1.6
1.6
1.5
1.4
1.3
1.3
1.2
1.2
1.1
1.1
0.9
0.7
0.7
NM
NM
NM
NM
1.5
1.3

Source: J.P. Morgan estimates, Bloomberg.

Risks to Rating and Price Target

SPLS Key downside risks: Results are highly correlated to the macro environment,
and deterioration in GDP and payroll growth could negatively impact results. Will
the rational pricing environment hold? An irrational pricing environment may
pressure margins beyond expectations. Furthermore, if the international segment
continues to deteriorate and weigh on profitability we could see downside to our
estimates. Secular issues surrounding increased electronics in the mix and lower
paper consumption could suppress results and valuation for a longer than expected
period.

This material was originally prepared by a J.P. Morgan entity (as identified in the material) in connection with its business and is being
provided to you as a courtesy in a modified format only for informational and educational purposes (not investment purposes), and on a
delayed basis.

North America Equity Research

25 September 2012

Christopher Horvers, CFA

l ll

Staples Consolidated Quarterly Earnings Model ($ in millions, except per share data)
ll
1Q10
2Q10
3Q10
4Q10
North American Retail Sales
North American Deliv ery Sales
International Operations Sales
Total Sales

2010

1Q11

2Q11

3Q11

4Q11

2011

1Q12

2Q12

3Q12E

4Q12E

53rd Wk
2012E

2013E

$2,312.2
2,462.7
1,282.9
$6,057.8

$2,010.5
2,359.4
1,164.3
$5,534.2

$2,644.3
2,537.1
1,356.2
$6,537.7

$2,562.7
2,490.0
1,362.71
$6,415.4

$9,529.8
9,849.2
5,166.1
$24,545.1

$2,328.1
2,511.6
1,333.2
$6,172.9

$2,045.1
2,433.2
1,341.3
$5,819.6

$2,656.6
2,582.7
1,330.6
$6,569.9

$2,631.0
2,528.4
1,300.3
$6,459.7

$9,660.8
10,056.0
5,305.3
$25,022.2

$2,323.8
2,555.1
1,225.9
$6,104.8

$1,989.1
2,412.8
1,096.6
5,498.5

$2,639.1
2,575.0
1,196.3
$6,410.4

$2,799.9
2,715.5
1,260.6
$6,776.0

$9,752.0
10,258.3
4,779.4
$24,789.7

$9,545.1
10,393.4
4,689.9
$24,628.3

COGS
Gross Profit

4,438.7
1,619.1

4,071.5
1,462.7

4,733.9
1,803.7

4,694.8
1,720.64

17,939.0
6,606.2

4,536.5
1,636.4

4,279.2
1,540.4

4,737.1
1,832.8

4,727.4
1,732.3

18,280.4
6,741.8

4,495.1
1,609.7

4,071.2
1,427.3

4,646.4
1,764.0

4,982.5
1,793.5

18,195.3
6,594.4

18,151.3
6,477.0

SG&A
Amortization of Intangibles
NA Retail Op. Inc.
NA Direct Op. Inc.
Intl Operations Op. Inc.
Stock-based compensation
Consolidated Operating Income
must approach zero
Interest and Other Ex pense, net
Pretax Income
Tax es
Net Income
Minority Interest
Consolidated Operating EPS
Diluted Shares O/S

1,220.5
15.4
176.5
203.5
36.9
33.8
383.2

1,158.0
14.9
105.7
206.4
13.5
35.9
289.8

1,264.7
15.6
279.6
224.6
58.8
39.6
523.4

1,270.0
15.8
208.2
206.9
57.4
37.7
434.8

4,913.2
61.7
770.1
841.4
166.6
146.9
1,631.3

1,270.8
17.3
177.3
196.9
9.5
35.4
348.3

1,246.0
16.2
102.9
204.8
16.6
46.1
278.1

1,283.6
16.0
284.2
245.0
39.6
35.6
533.2

1,248.0
15.5
240.0
231.3
32.3
34.8
468.8

5,048.5
64.9
804.4
877.9
98.0
151.8
1,628.4

1,248.4
15.3
171.0
209.0
(2.8)
31.1
346.1

1,192.4
14.8
88.4
185.8
(22.1)
32.0
220.1

54.3
328.9
123.3
205.5
3.7
$0.28
732.1

55.9
233.9
87.7
146.2
2.9
$0.20
729.7

52.6
470.9
176.6
294.3
(0.0)
$0.41
721.8

54.1
380.7
101.4
279.3
0.0
$0.39
721.2

216.9
1,414.4
489.0
925.3
6.6
$1.27
726.2

1,302.4
15.0
266.4
240.2
(0.2)
29.8
476.1
0.5
37.7
438.4
142.5
295.9
(0.0)
$0.44
670.1

5,005.3
60.1
800.1
866.3
(13.4)
123.5
1,529.1
0.5
158.1
1,371.0
445.6
925.4
(0.1)
$1.37
677.5

4,914.0
58.0
751.3
883.7
(5.3)
125.5
1,505.1
(0.8)
150.8
1,354.3
440.1
914.1
(0.1)
$1.40
654.9

Reported EPS (GAAP)

$0.28

$0.20

$0.41

$0.39

Margin Analysis
Gross Margin
SG&A
Goodw ill Amortization
NA Retail Op. Inc.
NA Direct Op. Inc.
Intl Operations Op. Inc.
Total Operating Ex penses
Total Operating Margin
Interest and Other Ex pense, net
Pretax Income
Tax Rate (% of pretax income)
Net Income

26.7%
20.1%
0.3%
7.6%
8.3%
2.9%
20.4%
6.3%
0.9%
5.4%
37.5%
3.4%

26.4%
20.9%
0.3%
5.3%
8.7%
1.2%
21.2%
5.2%
1.0%
4.2%
37.5%
2.6%

27.6%
19.3%
0.2%
10.6%
8.9%
4.3%
19.6%
8.0%
0.8%
7.2%
37.5%
4.5%

YOY % Growth
North American Retail Sales
North American Delivery Sales
International Operations Sales
Total Sales
Gross Margin
SG&A
NA Retail Op. Inc.
NA Direct Op. Inc.
Intl Operations Op. Inc.
Total Operating Income
Interest and Other Ex pense, net
Pretax Income
Net Income
EPS

5.7%
1.8%
6.0%
4.1%
6.1%
1.9%
10.0%
26.7%
83.4%
25.3%
(13.0%)
35.1%
28.9%
27.3%

1.9%
1.6%
(5.9%)
0.0%
2.7%
(0.3%)
2.8%
11.6%
262.1%
22.7%
(4.1%)
31.4%
25.4%
26.3%
0.0%

Sales/Store Data
NA Retail Same-Store Sales

40.7
237.4
81.9
155.5
(0.1)
$0.22
708.7

42.8
490.4
164.0
326.3
(0.1)
$0.47
698.0

39.2
429.6
146.1
283.5
(0.1)
$0.41
692.0

169.3
1,459.1
496.1
963.0
(0.8)
$1.37
704.0

41.0
305.1
99.1
205.9
(0.0)
$0.30
689.4

41.7
178.4
58.0
120.4
(0.0)
$0.18
679.1

$1.27

$0.28

$0.22

$0.47

$0.41

$1.37

$0.30

$0.18

$0.45

$0.44

$1.37

$1.40

26.8%
19.8%
0.2%
8.1%
8.3%
4.2%
20.0%
6.8%
0.8%
5.9%
26.6%
4.4%

26.9%
20.0%
0.3%
8.1%
8.5%
3.2%
20.3%
6.6%
0.9%
5.8%
34.6%
3.8%

26.5%
20.6%
0.3%
7.6%
7.8%
0.7%
20.9%
5.6%
0.8%
4.9%
34.5%
3.2%

26.5%
21.4%
0.3%
5.0%
8.4%
1.2%
21.7%
4.8%
0.7%
4.1%
34.5%
2.7%

27.9%
19.5%
0.2%
10.7%
9.5%
3.0%
19.8%
8.1%
0.7%
7.5%
33.5%
5.0%

26.8%
19.3%
0.2%
9.1%
9.1%
2.5%
19.6%
7.3%
0.6%
6.7%
34.0%
4.4%

26.9%
20.2%
0.3%
8.3%
8.7%
1.8%
20.4%
6.5%
0.7%
5.8%
34.0%
3.8%

26.4%
20.4%
0.2%
7.4%
8.2%
(0.2%)
20.7%
5.7%
0.7%
5.0%
32.5%
3.4%

26.0%
21.7%
0.3%
4.4%
7.7%
(2.0%)
22.0%
4.0%
0.8%
3.2%
32.5%
2.2%

27.5%
19.7%
0.2%
10.4%
9.0%
1.0%
19.9%
7.6%
0.6%
7.0%
32.5%
4.7%

26.5%
19.2%
0.2%
9.5%
8.8%
(0.0%)
19.4%
7.0%
0.6%
6.5%
32.5%
4.4%

26.6%
20.2%
0.2%
8.2%
8.4%
(0.3%)
20.4%
6.2%
0.6%
5.5%
32.5%
3.7%

26.3%
20.0%
0.2%
7.9%
8.5%
(0.1%)
20.2%
6.1%
0.6%
5.5%
32.5%
3.7%

0.6%
2.5%
(4.1%)
0.3%
2.1%
0.7%
5.2%
2.6%
46.7%
8.4%
8.6%
8.4%
3.4%
5.3%

(0.4%)
2.7%
(3.2%)
0.1%
(2.1%)
1.7%
(15.2%)
(6.9%)
(1.2%)
(10.1%)
(5.6%)
(10.7%)
0.0%
2.7%

1.8%
2.2%
(2.0%)
1.1%
2.0%
1.0%
(0.6%)
7.0%
36.5%
8.1%
(4.2%)
10.3%
10.2%
11.2%

0.7%
2.0%
3.9%
1.9%
1.1%
4.1%
0.5%
(3.3%)
(74.2%)
(9.1%)
(14.4%)
(8.2%)
(3.8%)
0.2%

1.7%
3.1%
15.2%
5.2%
5.3%
7.6%
(2.7%)
(0.8%)
22.4%
(4.0%)
(27.1%)
1.5%
6.4%
11.9%

0.5%
1.8%
(1.9%)
0.5%
1.6%
1.5%
1.6%
9.1%
(32.6%)
1.9%
(18.5%)
4.1%
10.9%
14.7%

2.7%
1.5%
(4.6%)
0.7%
0.7%
(1.7%)
15.2%
11.8%
(43.7%)
7.8%
(27.6%)
12.8%
1.5%
5.8%

1.4%
2.1%
2.7%
1.9%
2.1%
2.8%
4.5%
4.3%
(41.2%)
(0.2%)
(22.0%)
3.2%
4.1%
8.2%

(0.2%)
1.7%
(8.0%)
(1.1%)
(1.6%)
(1.8%)
(3.6%)
6.2%
(129.1%)
(0.7%)
(11.9%)
1.1%
4.2%
8.1%

(2.7%)
(0.8%)
(18.2%)
(5.5%)
(7.3%)
(4.3%)
(14.1%)
(9.3%)
(233.2%)
(20.9%)
2.4%
(24.9%)
(22.6%)
(19.3%)

(0.7%)
(0.3%)
(10.1%)
(2.4%)
(3.8%)
(1.7%)
(3.5%)
(5.6%)
(70.5%)
(8.7%)
(12.0%)
(8.4%)
(7.1%)
(3.4%)

6.4%
7.4%
(3.1%)
4.9%
3.5%
4.4%
11.0%
3.9%
(100.6%)
1.6%
(3.8%)
2.1%
4.4%
7.8%

0.9%
2.0%
(9.9%)
(0.9%)
(2.2%)
(0.9%)
(0.5%)
(1.3%)
(113.7%)
(6.1%)
(6.6%)
(6.0%)
(3.9%)
(0.2%)

(2.1%)
1.3%
(1.9%)
(0.7%)
(1.8%)
(1.8%)
(6.1%)
2.0%
(60.5%)
(1.6%)
(4.6%)
(1.2%)
(1.2%)
2.2%

0.0%

(1.0%)

0.0%

(1.0%)

(2.0%)

(0.6%)

(1.0%)

(2.0%)

(0.5%)

(1.0%)

(0.8%)

1,572
316
1,888
369
2,257

1,572
316
1,888
376
2,264

1,581
316
1,897
381
2,278

1,575
325
1,900
381
2,281

1,575
325
1,900
381
2,281

1,574
327
1,901
378
2,279

1,575
331
1,906
378
2,284

1,575
333
1,908
377
2,285

1,583
334
1,917
378
2,295

1,583
334
1,917
378
2,295

1,580
334
1,914
376
2,290

1,579
336
1,915
375
2,290

1,578
336
1,914
375
2,289

1,577
336
1,913
374
2,287

1,577
336
1,913
374
2,287

1,569
334
1,903
359
2,262

N. American Retail

38.2%

36.3%

40.4%

39.9%

38.8%

37.7%

35.1%

40.4%

40.7%

38.6%

38.1%

36.2%

41.2%

41.3%

39.3%

38.8%

N. American Direct/Deliv ery

40.7%

42.6%

38.8%

38.8%

40.1%

40.7%

41.8%

39.3%

39.1%

40.2%

41.9%

43.9%

40.2%

40.1%

41.4%

42.2%

International

21.2%

21.0%

20.7%

21.2%

21.0%

21.6%

23.0%

20.3%

20.1%

21.2%

20.1%

19.9%

18.7%

18.6%

19.3%

19.0%

Cash Flow Analysis

EBIT (1 - Tax Rate)
+ Depreciation & Amortization
- Capital Ex penditures
- Change in Non-Cash WC
Free Cash Flow

239.5
125.4
49.0
91.0
224.9

181.1
122.6
101.7
230.5
(28.5)

327.2
123.3
95.1
(205.1)
560.4

319.0
127.6
163.1
61.8
221.8

1,067.3
498.9
408.9
265.9
891.4

228.2
121.8
62.6
278.9
8.5

182.2
123.2
101.5
269.2
(65.4)

354.8
115.6
79.6
(288.2)
679.1

309.4
121.4
139.9
(107.2)
398.1

1,074.8
482.1
383.7
50.6
1,122.6

233.6
116.5
52.1
73.4
224.6

148.5
115.1
74.1
130.3
59.2

328.6
115.6
79.6
(327.5)
692.1

321.4
121.4
139.9
(83.9)
386.8

1,032.1
468.6
345.7
(207.7)
1,362.7

1,015.9
459.3
345.7
(28.2)
1,157.6

289.8
122.6
412.4
7.5%

523.4
123.3
646.8
9.9%

434.8
127.6
562.4
8.8%

1,631.3
498.9
2,130.1
8.7%

348.3
121.8
470.2
7.6%

278.1
123.2
401.3
6.9%

533.2
115.6
648.8
9.9%

468.8
121.4
590.2
9.1%

1,628.4
482.1
2,110.5
8.4%

346.1
116.5
462.6
7.6%

220.1
115.1
335.1
6.1%

486.9
115.6
602.5
9.4%

476.1
121.4
597.5
8.8%

1,529.1
468.6
1,997.7
8.1%

1,505.1
459.3
1,964.3
8.0%

U.S. Stores
Canadian Stores
N. American Stores
International Stores
Total Stores

1.0%

46.5
301.8
104.1
197.7
(0.6)
$0.28
717.4

1,262.1
15.0
274.3
231.4
11.7
30.6
486.9
(0.1)
37.7
449.2
146.0
303.2
(0.0)
$0.45
671.1

2.0%

0.0%

0.5%

Sales Mix

EBITDA Calculation
Operating Profit (EBIT)
383.2
+ Depreciation & Amortization
125.4
= EBITDA
508.6
EBITDA Margin
8.4%
Source: Company reports and J.P. Morgan estimates

This material was originally prepared by a J.P. Morgan entity (as identified in the material) in connection with its business and is being
provided to you as a courtesy in a modified format only for informational and educational purposes (not investment purposes), and on a
delayed basis.

Christopher Horvers, CFA

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25 September 2012

Staples: Summary of Financials

Income Statement - Annual
Revenues
COGS
Gross Profit
SG&A
Operating Income
EBITDA
Interest, Net
Pretax Income
Taxes
Tax Rate
Net income - operating
Diluted Shares Outstanding
Operating EPS
Balance Sheet and Cash Flow Data
Cash and Equivalents
Inventories
Current Assets

FY12A
24,790
18,195
6,594
5,005
5,005
1,998
158
1,371
446
32.5%
925
677
1.37
FY12A
1,311
2,343
6,150

FY13E
24,628
18,151
6,477
4,914
4,914
1,964
151
1,354
440
32.5%
914
655
1.40
FY13E
-

FY14E
FY14E
-

PP&E

2,057

Total Assets

4,959

Short-term Debt
Current Liabilities
Long-term Debt
Total Liabilities
Shareholders' Equity

175
3,831
1,424
5,997
7,170

Income Statement - Quarterly

Revenues
COGS
Gross Profit
SG&A
Operating Income
EBITDA
Interest, Net
Pretax Income
Taxes
Tax Rate
Net income - operating
Diluted Shares Outstanding
Operating EPS
Ratio Analysis and Valuation
Sales growth
Same store sales
EBITDA Growth
EBIT Growth

1Q13A
FY12A
(0.9%)
(0.8%)
(5.3%)
(6.1%)

2Q13A
FY13E
-

3Q13E
FY14E
-

EPS growth - operating

(0.2%)

Gross Margin
EBIT Margin
EBITDA Margin
Inventory growth
AP/inventory
Debt/EBITDA
Debt/Capital (book)

26.6%
8.1%
(3.7%)
92.6%
0.8
18.2%

0.4
4.5
15.8%
9.0

8.8

Net Income (including charges)

D&A
Other adjustments
Changes in Working Capital
Cash flow from Operations

907
469

- Return on invested capital (ROIC)

208
1,583

Capex
Free Cash Flow
Free Cash Flow/Share
Dividends
Dividend Yield

(346)
1,237
1.79
-

- Enterprise value / revenues

- Enterprise value / EBITDA
Free Cash Flow Yield
- P/E
-

4Q13E
-

Source: Company reports and J.P. Morgan estimates.

Note: $ in millions (except per-share data).Fiscal year ends Jan

This material was originally prepared by a J.P. Morgan entity (as identified in the material) in connection with its business and is being
provided to you as a courtesy in a modified format only for informational and educational purposes (not investment purposes), and on a
delayed basis.

North America Equity Research

25 September 2012

Christopher Horvers, CFA

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ll

Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research
analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document
individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views
expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of
any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
expressed by the research analyst(s) in this report.

Important Disclosures

Market Maker: JPMS makes a market in the stock of Staples.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Staples.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment
banking clients: Staples.

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following
company(ies) as clients, and the services provided were non-investment-banking, securities-related: Staples.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients,
and the services provided were non-securities-related: Staples.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking Staples.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking
services in the next three months from Staples.

Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services
other than investment banking from Staples.
Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan
covered companies by visiting www.jpmorganintelligence.com or by calling this U.S. toll-free number (1-800-477-0406).
)
Staples (SPLS, SPLS US) Price Chart
50
N $18
40

N $20

30

UW

N $27 OW $27OW $25

OW $19

N $25 OW $28OW $24

N $22

OW $30 OW $25

OW $20

OW $14

OW $22 OW $18 OW $17

Price($)
20

10

0
Oct
06

Jul
07

Apr
08

Jan
09

Oct
09

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Break in coverage Sep 26, 2007 - Aug 28, 2008.

Jul
10

Apr
11

Jan
12

Date

Rating Share Price

($)

Price Target
($)

26-Sep-07

UW

21.47

--

28-Aug-08

24.74

--

03-Dec-08 N

17.55

20.00

11-Mar-09

15.47

18.00

29-May-09 N

20.46

22.00

25-Aug-09

21.79

25.00

02-Dec-09 N

23.95

27.00

15-Jan-10

OW

25.11

30.00

03-Mar-10

OW

23.25

28.00

20-May-10 OW

21.38

27.00

10-Aug-10

OW

19.40

25.00

19-Aug-10

OW

18.93

24.00

26-Oct-10

OW

20.40

25.00

25-May-11 OW

16.58

22.00

12-Aug-11

OW

13.10

20.00

OW

13.57

19.00

OW

14.08

18.00

25-May-12 OW

13.49

17.00

12-Sep-12

11.37

14.00

Oct
12 18-Aug-11

28-Nov-11

OW

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire
period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve
7

Christopher Horvers, CFA

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North America Equity Research

25 September 2012

months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if
applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy
reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is
compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear
in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research
website, www.jpmorganintelligence.com.
Coverage Universe: Horvers, Christopher: Advance Auto Parts, Inc. (AAP), AutoZone, Inc. (AZO), Bed Bath & Beyond (BBBY),
Best Buy (BBY), Costco Wholesale Corporation (COST), Dick's Sporting Goods (DKS), GNC Holdings (GNC), Genuine Parts Company
(GPC), Lowe's Companies, Inc. (LOW), O'Reilly Automotive (ORLY), Office Depot (ODP), OfficeMax Inc. (OMX), PetSmart, Inc.
(PETM), RadioShack (RSH), Staples (SPLS), Target Corporation (TGT), The Home Depot (HD), Tractor Supply (TSCO), Vitamin
Shoppe, Inc (VSI), Wal-Mart Stores, Inc. (WMT), Williams-Sonoma, Inc. (WSM), hhgregg (HGG)
J.P. Morgan Equity Research Ratings Distribution, as of July 6, 2012
J.P. Morgan Global Equity Research Coverage
IB clients*
JPMS Equity Research Coverage
IB clients*

Overweight
(buy)
45%
51%
44%
70%

Neutral
(hold)
43%
47%
48%
62%

Underweight
(sell)
11%
34%
8%
51%

*Percentage of investment banking clients in each rating category.

For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table
above.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered
companies, please see the most recent company-specific research report at www.jpmorganintelligence.com
)
, contact the primary analyst
or your J.P. Morgan representative.
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8

Christopher Horvers, CFA

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North America Equity Research

25 September 2012

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"Other Disclosures" last revised August 25, 2012.

Copyright 2012 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or
redistributed without the written consent of J.P. Morgan. #$J&098$#*P
9

Christopher Horvers, CFA

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North America Equity Research

25 September 2012