Amid sluggish economic environment,
Office Depot Inc.
) posted third-quarter 2012 earnings of 6 cents a share compared
with a breakeven in the year-ago quarter, and way ahead of the
Zacks Consensus Estimate of 1 cent. Effective cost management
facilitated this office supply retailer to deliver
better-than-expected bottom-line results.
Including one-time items, Office Depot slumped to a loss of 25
cents a share compared with an earnings of 28 cents registered in
the prior-year quarter.
Office Depot's total revenue of $2,692.9 million decreased 5%
from the prior-year quarter and also fell short of the Zacks
Consensus Estimate of $2,724 million. In constant currency,
revenue slipped 3%.
Despite a 6% decline in cost of goods sold and occupancy costs
during the quarter, gross profit dropped 2% to $834.7 million.
However, gross margin expanded 90 basis points to 31% in the
Office Depot reported adjusted operating profit of $40.5
million up from $24.9 million in the year-ago quarter, whereas
operating margin increased 60 basis points to 1.5%.
During the quarter,
North American Retail
division revenue decreased 5% to $1,173.7 million, whereas
comparable-store sales dropped 4%.
Office Depot witnessed sharp sales decline across computers
and other related products but registered sales increase across
tablets and e-readers. Sales of Copy and Print rose while fell
for office furniture. Sales in the supplies category remained
even, whereas sales of ink and toner rose marginally. Management
stated that customer transaction counts dropped 4%, while the
average order value was marginally negative.
The division reported an operating loss of $21.3 million
compared with an operating profit of $41.9 million in the
Total store count at the North America Retail division stood
at 1,114 at the end of the quarter. During the quarter, the
company opened 1, closed 4 and relocated 5 stores.
North American Business Solutions
inched up 1% to $827.4 million. Direct channel sales decreased,
whereas contract channel sales rose. The division witnessed
improved sales in Copy and Print, furniture and cleaning and
breaks room supplies. Sales remained soft to federal and state
government due to budget constraint but were higher to customers
related to education sector.
The division posted operating profit of $54.8 million up from
$39.1 million in the year-ago quarter.
division's revenue dipped 12% in U.S. dollars to $691.9 million,
whereas it fell 4% in constant currency. The overall sales in
European contract channel dropped in the low single-digits as the
growth witnessed in Germany and even sales in the U.K. were
mitigated by soft sales in other parts of Europe. Asia contract
channel sales rose in the high single-digits.
European direct channel experienced a sales decline but the
rate of fall decelerated sequentially. The retail channel sales
slipped in low single-digits in Europe, whereas in Asia, South
Korean retail witnessed sales increase in high single-digits.
The division posted an operating profit of $1 million,
drastically down from $19.5 million in the year-ago quarter. At
the end of the quarter, total store count at the International
division stood at 134. During the quarter, the company opened 1
and closed 1 store.
Other Financial Details
Office Depot, the operator of office supply stores under brand
names such as Office Depot, Foray, Ativa, Break Escapes, Worklife
and Christopher Lowell, generated free cash flow of $189.7
million and incurred capital expenditures of $26.2 million.
The company ended the quarter with cash and cash equivalents
of $619.5 million, long-term debt of $486 million and
shareholders' equity of $676.9 million, excluding non-controlling
interest of $95,000.
No one can predict the future but efforts to combat the tough
economy are obvious. Business budget remains tight, consumers
remain more cautious than ever before and companies are trying
hard to navigate through the challenging environment. Consumers
and small businesses remain frugal about big ticket spending on
items such as business machines and other durable products.
We believe that the demand for office products is closely tied
to the health of the economy. Going by the pulse of the economy
we prefer to have a long-term Neutral recommendation on the
stock. However, Office Depot, which competes with
), holds a Zacks #5 Rank that translates into a short-term Strong
OFFICE DEPOT (ODP): Free Stock Analysis
OFFICEMAX INC (OMX): Free Stock Analysis
STAPLES INC (SPLS): Free Stock Analysis
To read this article on Zacks.com click here.