Staples, Inc. (Nasdaq: SPLS) announced today the results for its second quarter ended August 2, 2008, including the results of Corporate Express for July 2008. Total company sales increased 18 percent to $5.1 billion compared to the second quarter of 2007. Net income declined 16 percent year over year to $150 million, and earnings per share, on a diluted basis, decreased 16 percent to $0.21, from the $0.25 achieved in the second quarter of last year. Excluding the impact of Corporate Express, second quarter sales increased three percent to $4.4 billion and earnings per share, on a diluted basis, decreased 16 percent to $0.21.

North American Retail sales decreased one percent in the second quarter, and comparable store sales decreased seven percent versus 2007, reflecting declines in customer traffic and average order size as well as weakness in furniture, desktop computers, printers and digital cameras, partially offset by strength in laptops, ink and technology services.

Including $355 million of Corporate Express sales for July 2008, North American Delivery grew sales 25 percent to $2.0 billion. Excluding the impact of Corporate Express, North American Delivery sales grew two percent to $1.6 billion during the second quarter reflecting strong customer acquisition and retention offset by lower spend per existing customer, particularly in durable categories such as furniture.

Including $318 million of Corporate Express sales for July 2008, International sales increased 69 percent to $1.0 billion. Excluding the impact of Corporate Express, International sales grew 17 percent in US dollars and six percent in local currency compared to 2007. During the second quarter of 2008, comparable store sales in Europe were impacted by weakness in customer traffic and average order size, decreasing seven percent versus the same period in 2007.

“I am proud of our team for continuing to manage our business carefully during challenging economic times,” said Ron Sargent, Staples’ chairman and chief executive officer. “We are optimistic about the future for each of our three businesses. We’re excited about the opportunity to drive immediate shareholder value by integrating the Corporate Express acquisition into our North American Delivery business, we’re working hard to improve store productivity in North American Retail, and we’re taking the right steps to build on our foundation for long term growth in International markets.”

Highlights for the second quarter include:

Total Company

• Successfully completed the acquisition of Corporate Express.
• Achieved second quarter sales of $5.1 billion, including $673 million of Corporate Express sales for July 2008.
• Operating income rate declined 170 basis points to 4.84 percent compared to the second quarter of 2007.
• Excluding the impact of Corporate Express, operating income rate declined 127 basis points to 5.27 percent, primarily reflecting margin pressure in our North American Retail business.
• Opened 35 stores, closed five stores, and acquired 65 stores worldwide as a result of the Corporate Express acquisition, ending the second quarter operating 2,171 stores.
• Generated year to date free cash flow of $19 million after $169 million in capital expenditures, compared to free cash flow of $1 million for the same period last year.

North American Retail

• Achieved second quarter sales of $2.1 billion.
• Reported a 213 basis point decline in operating income rate to 5.29 percent versus the same period in 2007, primarily reflecting deleverage in rent and labor expense despite tight control of variable expenses and a slight increase in product margin rate.
• Achieved all-time high customer satisfaction scores.
• Opened 28 stores, closed one store, and acquired two Canadian stores as a result of the Corporate Express acquisition, ending the second quarter with 1,802 stores in North America.
• Reduced average inventory per store by 14 percent.

North American Delivery

• Achieved second quarter sales of $2.0 billion, including $355 million of Corporate Express sales for July 2008.
• Reported a 183 basis point decline in operating income rate to 8.83 percent versus the same period in 2007.
• Excluding Corporate Express, reported an 11 basis point decline in operating income rate to 10.55 percent versus the same period in 2007.
• Contract and Staples Business Delivery call centers recognized by J.D. Power and Associates for customer service excellence.

International

• Achieved second quarter sales of $1.0 billion, including $318 million of Corporate Express sales for July 2008.
• Reported a 73 basis point improvement in operating income rate to 1.46 percent versus the same period in 2007.
• Excluding Corporate Express, reported a 1 basis point decline in operating income rate to 0.72 percent versus the same period in 2007.
• Opened three stores in Portugal, and acquired 63 European stores as a result of the Corporate Express acquisition, ending the second quarter with 337 stores in Europe and 31 stores in China.
• Sustained top line momentum in China, with sales nearly doubling versus the prior year’s second quarter.
• Opened the company’s first South American retail store in Argentina.
• Named former Chief Executive Officer of Corporate Express, Peter Ventress, to the new role of President, International.

Outlook

Staples maintains its previous outlook, announced on August 19, 2008. On a GAAP basis, including modest accretion from Corporate Express, Staples expects low single-digit earnings per share growth for the full year, compared to $1.38 reported for 2007.

As a result of the Corporate Express acquisition, the company anticipates total annual synergies to build, over a three year period, to a range of $200 million to $300 million. The company’s estimated incremental interest expense is more than $100 million in the back half of 2008. The company’s preliminary forecast for amortization of intangibles is a range of $50 million to $70 million for the same period. The company expects these expenses to double in 2009. Additionally, Staples anticipates integration and restructuring expense to range from $30 million to $40 million in the back half of 2008, and to range from $50 million to $70 million in 2009.

For its pre-acquisition business, Staples expects low single-digit sales growth for 2008. On a non-GAAP basis, the company anticipates that diluted earnings per share will be flat for 2008. This excludes the previously disclosed impact on 2007 earnings for the $38 million pre-tax charge related to the settlement of California wage and hour class action litigation, as well as the impact of the Corporate Express acquisition.

In the near term, Staples plans to deploy free cash flows primarily to repay short term debt, and therefore does not anticipate repurchasing any of its shares.

Presentation of Non-GAAP Information

This press release presents certain results both with and without the July 2008 results of Corporate Express. The presentation of results that exclude these items are non-GAAP financial measures that should be considered in addition to, and should not be considered superior to or as a substitute for, the presentation of results determined in accordance with GAAP. Management believes that the non-GAAP financial measures presented in this press release provide a more meaningful comparison of the company’s year-over-year performance. Management also uses these non-GAAP financial measures to evaluate the company’s pre-acquisition operating results against prior year results and its operating plan.

Today's Conference Call

The company will host a conference call today at 8:00 a.m. (ET) to review these results and its outlook. Investors may listen to the call at http://investor.staples.com.

About Staples

Staples, the world’s largest office products company, is committed to making it easy for customers to buy a wide range of office products, including supplies, technology, furniture, and business services. With $27 billion in sales, Staples serves businesses of all sizes and consumers in 27 countries throughout North and South America, Europe, Asia and Australia. In July 2008, Staples acquired Corporate Express, one of the world’s leading suppliers of office products to businesses and institutions. Staples invented the office superstore concept in 1986 and is headquartered outside Boston. More information about Staples (Nasdaq: SPLS) 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 headings that include the words “Outlook” or “Estimates” 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; economic conditions may cause a decline in business and consumer spending which could adversely affect our business and financial performance; we may not be able to successfully integrate Corporate Express into our existing operations to realize anticipated benefits and our growth may strain our operations; we may be unable to continue to open new stores and enter new markets successfully; if we are unable to manage our debt, it could materially harm our business and financial condition and restrict our operating flexibility; we may be unable to attract and retain qualified associates; our quarterly operating results are subject to significant fluctuation; 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 intellectual property and product liability claims; our effective tax rate may fluctuate; our information security may be compromised; various legal proceedings may adversely affect our business and financial performance; and those other factors discussed or referenced in our most recent quarterly report on Form 10-Q filed with the SEC, under the heading “Risk Factors” and elsewhere, and any subsequent periodic or current reports filed by us with the SEC. In addition, any forward-looking statements represent our estimates only as of the date such statements are made (unless another date is indicated) 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.

Financial information follows.