JPM- Staples- Sep 2012

North America Equity Research

25 September 2012

StaplesOverweight

SPLS, SPLS US

Long Road Ahead But New Mindset Reflects a

Greater Sense of Urgency

Price: $12.35

Price Target: $14.00

Retailing Hardlines

Christopher Horvers, CFA AC

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Mark A Becks

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?

Rachel Stubins

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?

J.P. Morgan Securities LLC

YTD 1m 3m 12m

Abs -13.1% 13.8% -3.1% -8.1%

Rel -27.2% 10.6% -12.2% -33.4%

Staples (SPLS;SPLS US)

FYE Jan 2011A 2012A 2013E

EPS Reported ($)

Q1 (Apr) 0.28 0.30 -

Q2 (Jul) 0.22 0.18 -

Q3 (Oct) 0.47 0.45 -

Q4 (Jan) 0.41 0.44 -

FY 1.37 1.37 1.40

Bloomberg EPS FY ($) 1.37 1.37 1.43

P/E FY 9.0 9.0 8.8

EV/EBITDA FY 4.2 4.5 -

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

consensus estimates.

Company Data

Price ($) 12.35

Date Of Price 24 Sep 12

52-week Range ($) 16.93 - 10.57

Mkt Cap ($ bn) 8.51

Fiscal Year End Jan

Shares O/S (mn) 689

Price Target ($) 14.00

Price Target End Date 31 Dec 13

See page 7 for analyst certification and important disclosures.

10

12

14

16

$

Sep-11 Dec-11 Mar-12 Jun-12 Sep-12

Price Performance

SPLS share price ($)

S&P500 (rebased)

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).

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.

www.jpmorganintelligence.comwww.jpmorganintelligence.com

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, users should be aware thatthe 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 beingprovided to you as a courtesy in a modified format only for informational and educational purposes (not investment purposes), and on adelayed basis.

2North America Equity Research

25 September 2012

Christopher Horvers, CFA

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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.

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


25 September 2012


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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

Source: J.P. Morgan estimates, Bloomberg.

2011 2012E 2013E

EPS $1.37 $1.37 $1.40

PE 8.6x 8.6x 8.5x

Hist Av g 18.0x 16.0x

Hist Trough 8.0x 9.0x

Hist Peak 25.0x 22.7x

EBITDA $2,110.5 $1,997.7 $1,964.3

EV/EBITDA 4.4x 4.6x 4.7x

Hist Av g 8.5x 7.5x

Hist Trough 5.0x 4.0x

Hist Peak 10.6x 9.6x

Price Target $14.00

PE 10.2x 10.2x 10.0x

EV/EBITDA 5.0x 4.8x 4.7x

Upside/Downside 19%



25 September 2012


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Coverage Matrix

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.

Ticker PE Ticker EV / EBITDA Ticker PEG

2013E 2013E Ratio

VSI 24.0x TSCO 11.6x SPLS 3.9

TSCO 22.3x VSI 11.5x COST 2.2

COST 22.3x HD 10.0x WSM 1.8

PETM 18.4x COST 9.4x GPC 1.8

HD 18.1x ORLY 9.4x AAP 1.6

DKS 17.6x GNC 9.2x PETM 1.6

ORLY 16.0x PETM 8.8x HD 1.5

WSM 15.6x AZO 8.8x WMT 1.4

LOW 15.1x GPC 8.5x VSI 1.3

GPC 14.2x DKS 8.4x TGT 1.3

GNC 13.9x LOW 8.2x TSCO 1.2

WMT 13.9x WMT 8.0x DKS 1.2

TGT 13.3x TGT 7.8x ORLY 1.1

AZO 13.0x BBBY 6.7x BBBY 1.1

BBBY 12.1x WSM 6.6x HGG 0.9

AAP 11.9x AAP 6.1x AZO 0.7

OMX 10.5x SPLS 4.7x GNC 0.7

SPLS 8.4x ODP 4.4x ODP NM

HGG 7.4x OMX 3.4x OMX NM

ODP NM HGG 2.8x RSH NM

RSH NM RSH 1.1x LOW NM

Average 15.2x Average 7.7x Average 1.5

Median 14.2x Median 8.3x Median 1.3



25 September 2012


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Staples Consolidated Quarterly Earnings Model ($ in millions, except per share data) 53rd Wk

1Q10 2Q10 3Q10 4Q10 2010 1Q11 2Q11 3Q11 4Q11 2011 1Q12 2Q12 3Q12E 4Q12E 2012E 2013E

North American Retail Sales $2,312.2 $2,010.5 $2,644.3 $2,562.7 $9,529.8 $2,328.1 $2,045.1 $2,656.6 $2,631.0 $9,660.8 $2,323.8 $1,989.1 $2,639.1 $2,799.9 $9,752.0 $9,545.1

North American Delivery Sales 2,462.7 2,359.4 2,537.1 2,490.0 9,849.2 2,511.6 2,433.2 2,582.7 2,528.4 10,056.0 2,555.1 2,412.8 2,575.0 2,715.5 10,258.3 10,393.4

International Operations Sales 1,282.9 1,164.3 1,356.2 1,362.71 5,166.1 1,333.2 1,341.3 1,330.6 1,300.3 5,305.3 1,225.9 1,096.6 1,196.3 1,260.6 4,779.4 4,689.9

Total Sales $6,057.8 $5,534.2 $6,537.7 $6,415.4 $24,545.1 $6,172.9 $5,819.6 $6,569.9 $6,459.7 $25,022.2 $6,104.8 5,498.5 $6,410.4 $6,776.0 $24,789.7 $24,628.3

COGS 4,438.7 4,071.5 4,733.9 4,694.8 17,939.0 4,536.5 4,279.2 4,737.1 4,727.4 18,280.4 4,495.1 4,071.2 4,646.4 4,982.5 18,195.3 18,151.3

Gross Profit 1,619.1 1,462.7 1,803.7 1,720.64 6,606.2 1,636.4 1,540.4 1,832.8 1,732.3 6,741.8 1,609.7 1,427.3 1,764.0 1,793.5 6,594.4 6,477.0

SG&A 1,220.5 1,158.0 1,264.7 1,270.0 4,913.2 1,270.8 1,246.0 1,283.6 1,248.0 5,048.5 1,248.4 1,192.4 1,262.1 1,302.4 5,005.3 4,914.0

Amortization of Intangibles 15.4 14.9 15.6 15.8 61.7 17.3 16.2 16.0 15.5 64.9 15.3 14.8 15.0 15.0 60.1 58.0

NA Retail Op. Inc. 176.5 105.7 279.6 208.2 770.1 177.3 102.9 284.2 240.0 804.4 171.0 88.4 274.3 266.4 800.1 751.3

NA Direct Op. Inc. 203.5 206.4 224.6 206.9 841.4 196.9 204.8 245.0 231.3 877.9 209.0 185.8 231.4 240.2 866.3 883.7

Intl Operations Op. Inc. 36.9 13.5 58.8 57.4 166.6 9.5 16.6 39.6 32.3 98.0 (2.8) (22.1) 11.7 (0.2) (13.4) (5.3)

Stock-based compensation 33.8 35.9 39.6 37.7 146.9 35.4 46.1 35.6 34.8 151.8 31.1 32.0 30.6 29.8 123.5 125.5

Consolidated Operating Income 383.2 289.8 523.4 434.8 1,631.3 348.3 278.1 533.2 468.8 1,628.4 346.1 220.1 486.9 476.1 1,529.1 1,505.1

must approach zero (0.1) 0.5 0.5 (0.8)

Interest and Other Ex pense, net 54.3 55.9 52.6 54.1 216.9 46.5 40.7 42.8 39.2 169.3 41.0 41.7 37.7 37.7 158.1 150.8

Pretax Income 328.9 233.9 470.9 380.7 1,414.4 301.8 237.4 490.4 429.6 1,459.1 305.1 178.4 449.2 438.4 1,371.0 1,354.3

Tax es 123.3 87.7 176.6 101.4 489.0 104.1 81.9 164.0 146.1 496.1 99.1 58.0 146.0 142.5 445.6 440.1

Net Income 205.5 146.2 294.3 279.3 925.3 197.7 155.5 326.3 283.5 963.0 205.9 120.4 303.2 295.9 925.4 914.1

Minority Interest 3.7 2.9 (0.0) 0.0 6.6 (0.6) (0.1) (0.1) (0.1) (0.8) (0.0) (0.0) (0.0) (0.0) (0.1) (0.1)

Consolidated Operating EPS $0.28 $0.20 $0.41 $0.39 $1.27 $0.28 $0.22 $0.47 $0.41 $1.37 $0.30 $0.18 $0.45 $0.44 $1.37 $1.40

Diluted Shares O/S 732.1 729.7 721.8 721.2 726.2 717.4 708.7 698.0 692.0 704.0 689.4 679.1 671.1 670.1 677.5 654.9

Reported EPS (GAAP) $0.28 $0.20 $0.41 $0.39 $1.27 $0.28 $0.22 $0.47 $0.41 $1.37 $0.30 $0.18 $0.45 $0.44 $1.37 $1.40

Margin Analysis

Gross Margin 26.7% 26.4% 27.6% 26.8% 26.9% 26.5% 26.5% 27.9% 26.8% 26.9% 26.4% 26.0% 27.5% 26.5% 26.6% 26.3%

SG&A 20.1% 20.9% 19.3% 19.8% 20.0% 20.6% 21.4% 19.5% 19.3% 20.2% 20.4% 21.7% 19.7% 19.2% 20.2% 20.0%

Goodwill Amortization 0.3% 0.3% 0.2% 0.2% 0.3% 0.3% 0.3% 0.2% 0.2% 0.3% 0.2% 0.3% 0.2% 0.2% 0.2% 0.2%

NA Retail Op. Inc. 7.6% 5.3% 10.6% 8.1% 8.1% 7.6% 5.0% 10.7% 9.1% 8.3% 7.4% 4.4% 10.4% 9.5% 8.2% 7.9%

NA Direct Op. Inc. 8.3% 8.7% 8.9% 8.3% 8.5% 7.8% 8.4% 9.5% 9.1% 8.7% 8.2% 7.7% 9.0% 8.8% 8.4% 8.5%

Intl Operations Op. Inc. 2.9% 1.2% 4.3% 4.2% 3.2% 0.7% 1.2% 3.0% 2.5% 1.8% (0.2%) (2.0%) 1.0% (0.0%) (0.3%) (0.1%)

Total Operating Expenses 20.4% 21.2% 19.6% 20.0% 20.3% 20.9% 21.7% 19.8% 19.6% 20.4% 20.7% 22.0% 19.9% 19.4% 20.4% 20.2%

Total Operating Margin 6.3% 5.2% 8.0% 6.8% 6.6% 5.6% 4.8% 8.1% 7.3% 6.5% 5.7% 4.0% 7.6% 7.0% 6.2% 6.1%

Interest and Other Ex pense, net 0.9% 1.0% 0.8% 0.8% 0.9% 0.8% 0.7% 0.7% 0.6% 0.7% 0.7% 0.8% 0.6% 0.6% 0.6% 0.6%

Pretax Income 5.4% 4.2% 7.2% 5.9% 5.8% 4.9% 4.1% 7.5% 6.7% 5.8% 5.0% 3.2% 7.0% 6.5% 5.5% 5.5%

Tax Rate (% of pretax income) 37.5% 37.5% 37.5% 26.6% 34.6% 34.5% 34.5% 33.5% 34.0% 34.0% 32.5% 32.5% 32.5% 32.5% 32.5% 32.5%

Net Income 3.4% 2.6% 4.5% 4.4% 3.8% 3.2% 2.7% 5.0% 4.4% 3.8% 3.4% 2.2% 4.7% 4.4% 3.7% 3.7%

YOY % Growth

North American Retail Sales 5.7% 1.9% 0.6% (0.4%) 1.8% 0.7% 1.7% 0.5% 2.7% 1.4% (0.2%) (2.7%) (0.7%) 6.4% 0.9% (2.1%)

North American Delivery Sales 1.8% 1.6% 2.5% 2.7% 2.2% 2.0% 3.1% 1.8% 1.5% 2.1% 1.7% (0.8%) (0.3%) 7.4% 2.0% 1.3%

International Operations Sales 6.0% (5.9%) (4.1%) (3.2%) (2.0%) 3.9% 15.2% (1.9%) (4.6%) 2.7% (8.0%) (18.2%) (10.1%) (3.1%) (9.9%) (1.9%)

Total Sales 4.1% 0.0% 0.3% 0.1% 1.1% 1.9% 5.2% 0.5% 0.7% 1.9% (1.1%) (5.5%) (2.4%) 4.9% (0.9%) (0.7%)

Gross Margin 6.1% 2.7% 2.1% (2.1%) 2.0% 1.1% 5.3% 1.6% 0.7% 2.1% (1.6%) (7.3%) (3.8%) 3.5% (2.2%) (1.8%)

SG&A 1.9% (0.3%) 0.7% 1.7% 1.0% 4.1% 7.6% 1.5% (1.7%) 2.8% (1.8%) (4.3%) (1.7%) 4.4% (0.9%) (1.8%)

NA Retail Op. Inc. 10.0% 2.8% 5.2% (15.2%) (0.6%) 0.5% (2.7%) 1.6% 15.2% 4.5% (3.6%) (14.1%) (3.5%) 11.0% (0.5%) (6.1%)

NA Direct Op. Inc. 26.7% 11.6% 2.6% (6.9%) 7.0% (3.3%) (0.8%) 9.1% 11.8% 4.3% 6.2% (9.3%) (5.6%) 3.9% (1.3%) 2.0%

Intl Operations Op. Inc. 83.4% 262.1% 46.7% (1.2%) 36.5% (74.2%) 22.4% (32.6%) (43.7%) (41.2%) (129.1%) (233.2%) (70.5%) (100.6%) (113.7%) (60.5%)

Total Operating Income 25.3% 22.7% 8.4% (10.1%) 8.1% (9.1%) (4.0%) 1.9% 7.8% (0.2%) (0.7%) (20.9%) (8.7%) 1.6% (6.1%) (1.6%)

Interest and Other Ex pense, net (13.0%) (4.1%) 8.6% (5.6%) (4.2%) (14.4%) (27.1%) (18.5%) (27.6%) (22.0%) (11.9%) 2.4% (12.0%) (3.8%) (6.6%) (4.6%)

Pretax Income 35.1% 31.4% 8.4% (10.7%) 10.3% (8.2%) 1.5% 4.1% 12.8% 3.2% 1.1% (24.9%) (8.4%) 2.1% (6.0%) (1.2%)

Net Income 28.9% 25.4% 3.4% 0.0% 10.2% (3.8%) 6.4% 10.9% 1.5% 4.1% 4.2% (22.6%) (7.1%) 4.4% (3.9%) (1.2%)

EPS 27.3% 26.3% 5.3% 2.7% 11.2% 0.2% 11.9% 14.7% 5.8% 8.2% 8.1% (19.3%) (3.4%) 7.8% (0.2%) 2.2%

Sales/Store Data

NA Retail Same-Store Sales 1.0% 0.0% (1.0%) (2.0%) (0.6%) (1.0%) 0.0% (1.0%) 2.0% 0.0% 0.0% (2.0%) (0.5%) (1.0%) (0.8%) 0.5%

U.S. Stores 1,572 1,572 1,581 1,575 1,575 1,574 1,575 1,575 1,583 1,583 1,580 1,579 1,578 1,577 1,577 1,569

Canadian Stores 316 316 316 325 325 327 331 333 334 334 334 336 336 336 336 334

N. American Stores 1,888 1,888 1,897 1,900 1,900 1,901 1,906 1,908 1,917 1,917 1,914 1,915 1,914 1,913 1,913 1,903

International Stores 369 376 381 381 381 378 378 377 378 378 376 375 375 374 374 359

Total Stores 2,257 2,264 2,278 2,281 2,281 2,279 2,284 2,285 2,295 2,295 2,290 2,290 2,289 2,287 2,287 2,262

Sales Mix

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/Delivery 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) 239.5 181.1 327.2 319.0 1,067.3 228.2 182.2 354.8 309.4 1,074.8 233.6 148.5 328.6 321.4 1,032.1 1,015.9

+ Depreciation & Amortization 125.4 122.6 123.3 127.6 498.9 121.8 123.2 115.6 121.4 482.1 116.5 115.1 115.6 121.4 468.6 459.3

- Capital Ex penditures 49.0 101.7 95.1 163.1 408.9 62.6 101.5 79.6 139.9 383.7 52.1 74.1 79.6 139.9 345.7 345.7

- Change in Non-Cash WC 91.0 230.5 (205.1) 61.8 265.9 278.9 269.2 (288.2) (107.2) 50.6 73.4 130.3 (327.5) (83.9) (207.7) (28.2)

Free Cash Flow 224.9 (28.5) 560.4 221.8 891.4 8.5 (65.4) 679.1 398.1 1,122.6 224.6 59.2 692.1 386.8 1,362.7 1,157.6

EBITDA Calculation

Operating Profit (EBIT) 383.2 289.8 523.4 434.8 1,631.3 348.3 278.1 533.2 468.8 1,628.4 346.1 220.1 486.9 476.1 1,529.1 1,505.1

+ Depreciation & Amortization 125.4 122.6 123.3 127.6 498.9 121.8 123.2 115.6 121.4 482.1 116.5 115.1 115.6 121.4 468.6 459.3

= EBITDA 508.6 412.4 646.8 562.4 2,130.1 470.2 401.3 648.8 590.2 2,110.5 462.6 335.1 602.5 597.5 1,997.7 1,964.3

EBITDA Margin 8.4% 7.5% 9.9% 8.8% 8.7% 7.6% 6.9% 9.9% 9.1% 8.4% 7.6% 6.1% 9.4% 8.8% 8.1% 8.0%

Source: Company reports and J.P. Morgan estimates



25 September 2012


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Staples: Summary of FinancialsIncome Statement - Annual FY12A FY13E FY14E Income Statement - Quarterly 1Q13A 2Q13A 3Q13E 4Q13E

Revenues 24,790 24,628 - Revenues - - - -

COGS 18,195 18,151 - COGS - - - -

Gross Profit 6,594 6,477 - Gross Profit - - - -

SG&A 5,005 4,914 - SG&A - - - -

Operating Income 5,005 4,914 - Operating Income - - - -

EBITDA 1,998 1,964 - EBITDA - - - -

Interest, Net 158 151 - Interest, Net - - - -

Pretax Income 1,371 1,354 - Pretax Income - - - -

Taxes 446 440 - Taxes - - - -

Tax Rate 32.5% 32.5% - Tax Rate - - - -

Net income - operating 925 914 - Net income - operating - - - -

Diluted Shares Outstanding 677 655 - Diluted Shares Outstanding - - - -

Operating EPS 1.37 1.40 - Operating EPS - - - -

Balance Sheet and Cash Flow Data FY12A FY13E FY14E Ratio Analysis and Valuation FY12A FY13E FY14E

Cash and Equivalents 1,311 - - Sales growth (0.9%) - -

Inventories 2,343 - - Same store sales (0.8%) - -

Current Assets 6,150 - - EBITDA Growth (5.3%) - -

EBIT Growth (6.1%) - -

PP&E 2,057 - -

EPS growth - operating (0.2%) - -

Total Assets 4,959 - -

Gross Margin 26.6% - -

Short-term Debt 175 - - EBIT Margin - - -

Current Liabilities 3,831 - - EBITDA Margin 8.1% - -

Long-term Debt 1,424 - - Inventory growth (3.7%) - -

Total Liabilities 5,997 - - AP/inventory 92.6% - -

Shareholders' Equity 7,170 - - Debt/EBITDA 0.8 - -

Debt/Capital (book) 18.2% - -

Net Income (including charges) 907 - -

D&A 469 - - Return on invested capital (ROIC) - - -

Other adjustments

Changes in Working Capital 208 - - Enterprise value / revenues 0.4 - -

Cash flow from Operations 1,583 - - Enterprise value / EBITDA 4.5 - -

Free Cash Flow Yield 15.8% - -

Capex (346) - - P/E 9.0 8.8 -

Free Cash Flow 1,237 - -

Free Cash Flow/Share 1.79 - -

Dividends - - -

Dividend Yield - - -

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

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



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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

?

Date Rating Share Price

($)

Price Target

($)

26-Sep-07 UW 21.47 --

28-Aug-08 N 24.74 --

03-Dec-08 N 17.55 20.00

11-Mar-09 N 15.47 18.00

29-May-09 N 20.46 22.00

25-Aug-09 N 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

18-Aug-11 OW 13.57 19.00

28-Nov-11 OW 14.08 18.00

25-May-12 OW 13.49 17.00

12-Sep-12 OW 11.37 14.00

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

0

10

20

30

40

50

Price($)

Oct

06

Jul

07

Apr

08

Jan

09

Oct

09

Jul

10

Apr

11

Jan

12

Oct

12

Staples (SPLS, SPLS US) Price Chart

N $18 N $27 OW $27OW $25 OW $19

N $20 N $25 OW $28OW $24 OW $20 OW $14

UW N N $22 OW $30 OW $25 OW $22 OW $18 OW $17

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Break in coverage Sep 26, 2007 - Aug 28, 2008.

www.jpmorganintelligence.com or by calling this U.S. toll-free number (1-800-477-0406). covered companies by visiting


25 September 2012


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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

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

Overweight

(buy)

Neutral

(hold)

Underweight

(sell)

J.P. Morgan Global Equity Research Coverage 45% 43% 11%

IB clients* 51% 47% 34%

JPMS Equity Research Coverage 44% 48% 8%

IB clients* 70% 62% 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 ? , contact the primary analyst

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25 September 2012


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10

North America Equity Research

25 September 2012


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Documents

JPM- Staples- Sep 2012