Office Depot Inc.
), the office supplier retailer, posted adjusted earnings per
share of 2 cents in the third quarter of 2013, which missed the
Zacks Consensus Estimate of 5 cents. Moreover, results were
substantially down 66.7% from 6 cents reported in the year-ago
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Including one-time items, Office Depot's earnings improved to 41
cents per share as against a loss of 25 cents in the prior-year
Office Depot's total revenue of $2,619.4 million decreased about
3.0% from the prior-year quarter but surpassed the Zacks
Consensus Estimate of $2,611.0 million.
Gross profit fell 4.5% to $632.7 million as decline in sales more
than offset the company's cost containment efforts. Gross margin
declined 45 basis points to 24.2% in the quarter. The fall in
margin was mainly due to weak performance of the North American
Retail and International Divisions, partially offset by the North
American Business Solutions Division.
In the quarter,
North American Retail
division's revenues fell 3.9% to $1,127.8 million while
comparable-store sales dropped 2%. Operating income was $10.2
million as against loss of $52 million in the prior-year quarter.
Office Depot witnessed sales decline across technology and
peripherals, offset by higher sales of tablets and mobility
products. Sales of Copy and Print Depot and school supplies rose,
while furniture experienced a fall in sales. Management stated
that customer transaction count fell 2% and the average order
value dipped 1%.
The division reported adjusted operating income of approximately
$15.0 million in the quarter, down from $22.0 million earned in
the prior-year quarter, mainly owing to fall in sales and
contraction in gross margin, partly offset by expense reduction
Total store count at the North America Retail division was 1,104
at the quarter-end. Moreover, during the quarter, the company
opened 2 stores, shuttered 7 stores and relocated 4 outlets.
North American Business Solutions
fell nearly 2% to $811.2 million. Contract channels sales
declined in the quarter and Direct channel sales remained flat.
The division posted an operating income of $38.8 million, up
27.6% from $30.4 million in the year-ago quarter. Excluding
one-time charges, operating income increased by $6 million. The
rise was driven by gross margin expansion and fall in
advertising, general and administrative expenses as well as
division's revenues dipped 4% on a constant currency basis and 2%
based on U.S. dollars, to $680.5 million. The overall sales in
the European contract channel fell in mid single digits. Direct
channel experienced a sales decline but the rate of fall
decelerated sequentially. The retail channel sales decreased,
owing to the stores closed in Sweden, partly offset by sales
growth in France.
The division reported an operating income of $2.6 million in the
quarter as against loss of $14.6 million in the prior-year
period. Excluding one-time items, operating income was $6.0
million, up from $4 million in the prior-year quarter. At the end
of the quarter, total store count at the International division
was 121. During the quarter, the company closed 2 stores.
) and Office Depot recently announced the completion of the
merger, which sanctions combination of both the companies under
the name Office Depot, Inc. that will trade at the New York Stock
Exchange under the symbol "ODP". At present, Neil Austrian,
Chairman and CEO of Office Depot and Ravi Saligram, President and
CEO of OfficeMax, will together supervise the newly formed
The all-stock merger agreement, which involves 2.69 Office Depot
shares for each share of OfficeMax, would result in cost
synergies in the upper half of $400 million to $600 million by
the end of the third year following the deal's conclusion.
It was in February that OfficeMax and Office Depot decided to
merge their businesses to compete with the industry bellwether,
) and online rivals such as
) in a better manner. The move was a strategic one for both the
companies, which have been grappling with soft sales.
The new company, which has total revenue of about $17 billion for
the 12 months ended Sep 28, 2013 has about 66,000 employees
worldwide. It offers services in 59 countries and operates over
2,200 retail outlets.
Other Financial Details
This Zacks Rank #4 (Sell) company ended the quarter with cash and
cash equivalents of $724.7 million, long-term debt (net of
current maturities) of $471.3 million and shareholders' equity of
$777.2 million. The company incurred capital expenditures of $32
million, and generated negative free cash flow of $57.6 million
during the quarter.