2009-12-21 16:56:08 -

Fitch Ratings has affirmed Staples, Inc.'s (Staples) ratings as follows.

--Long-term Issuer Default Rating (IDR) at 'BBB';

--Bank credit facility at 'BBB';

--Senior unsecured notes at 'BBB';

--Short-term IDR at 'F2';

--Commercial paper at 'F2'.

Staples had $2.6 billion in debt outstanding at Oct. 31, 2009. The Rating Outlook is Stable.

The affirmation reflects Staples' leadership position in the office products industry, successful brand and product differentiation strategy, and smooth integration of the 2008 Corporate Express acquisition to date. The ratings also consider the company's relatively steady credit metrics and strong liquidity position. This is balanced by recent pressures on sales and operating margins from a competitive and weak economic environment as

well as potential challenges as the company grows its international footprint.

High unemployment and lower business spending have pressured the company's comparable store sales over the past two and one-half years.
Nonetheless, Staples' leadership position in the office products industry with 2,253 stores worldwide and revenues of $24 billion in the last 12 months (LTM) ending Oct. 31, 2009 and its strong execution have allowed the company to continue to outperform other office products retailers. This is evidenced by Staples' industry-leading comparable store sales and operating profit margin. In addition, increased penetration with existing delivery business customers as a result of its emphasis on a positive and easy shopping experience through the "easy" brand and Staples' smooth integration with Corporate Express to date have strengthened delivery sales with both existing and new customers.
While LTM comparable store sales decreased an average of 6.4% and 9.0% in the North American retail (NAR) and international retail businesses, respectively, they have improved on a sequential basis, with NAR and international comparable store sales of 0% and -9%, respectively, in the third quarter of 2009 (3Q'09) compared to -8% and -14%, respectively, in 1Q'09. Fitch expects comparable store sales to be in the low negative single digits in 2010 as unemployment is expected to be over 10%. Partly as a result of the lower margin business of Corporate Express, Staples' LTM operating EBIT margin declined to 6.2% from 6.7% in fiscal 2008.
However, Fitch expects that synergies and economies of scale in areas such as salesforce, marketing and purchasing should help margins improve over time. In addition, the company's strong working capital management has produced free cash flow of $1.4 billion year to date as of Oct. 31, 2009.

As Staples has used excess cash flow for debt reduction, the company's credit metrics have remained relatively steady. Since the company's peak borrowing following the Corporate Express acquisition, $1.9 billion of debt has been repaid. Therefore, LTM adjusted debt/operating EBITDAR was 3.1 times (x) and EBITDAR coverage of interest and rents was 2.8x compared to 3.3x and 3.2x, respectively, in fiscal 2008. In addition, Staples has a strong liquidity position as supported by cash and cash equivalents of $1 billion and a $750 million bank credit facility. Fitch expects Staples to remain disciplined in its financial strategy and use future cash flow generation to reduce debt levels over time.

Staples may face challenges as it continues to grow its businesses internationally. With the addition of Corporate Express, the company is in 25 countries across Europe, Asia, South America, Australia and New Zealand. Given the diverse customer base, Staples needs to have the right infrastructure in place to service their different needs effectively. Given its ongoing supply chain initiatives and strong strategy execution, Fitch expects Staples to remain competitive.

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Fitch RatingsTiffany Co, +1-312-368-3185 (Chicago)Karen
Ghaffari, CFA, CPA, +1-212-908-0708 (New York)Cindy Stoller,
+1-212-908-0526 (Media Relations, New York) cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com