Amid a sluggish economic environment, Office Depot
Inc. ( ODP
) posted breakeven bottom-line results for the first quarter of
2013 that fell short of the Zacks Consensus Estimate of 5 cents and
went down significantly from the year-ago earnings of 11 cents.
Soft top-line performance muted the company's cost containment
Including one-time items, Office Depot slumped to a loss of 6
cents a share compared with earnings of 14 cents registered in the
Office Depot's total revenue of $2,718.3 million decreased 5.4%
(both in constant currency and U.S. dollars) from the prior-year
quarter and also came below the Zacks Consensus Estimate of $2,783
The company stated that shift in the timing of the New Year and
Easter holidays negatively impacted sales by approximately $58
million or 200 basis points year over year. .
Despite a 5.5% decline in cost of goods and occupancy costs
during the quarter, gross profit dropped 5% to $659.7 million.
However, gross margin expanded 10 basis points to 24.3% in the
Office Depot reported adjusted operating income of $34.2 million
down from $56 million in the year-ago quarter, whereas operating
margin shriveled 60 basis points to 1.3%.
During the quarter, North American Retail
division revenue decreased 6% to $1,143.8 million, whereas
comparable-store sales dropped 5%.
Office Depot witnessed sales decline across technology
peripherals, while shift in consumer demand into tablets negatively
impacted the sales of laptops. Sales of Copy and Print, and
cleaning and breakroom supplies rose, though it fell for office
furniture and supplies. Management stated that customer transaction
counts dropped 5%, while the average order value declined
The division reported an operating income of $15 million, down
17.1% year over year, while operating margin contracted 20 basis
points to 1.3%.
Total store count at the North America Retail division stood at
1,111 at the end of the quarter. During the quarter, the company
closed 1 store and relocated 4 stores.
Revenue for North American Business Solutions
decreased 1% to $815.7 million. Both direct and contract channels
sales declined during the quarter. The division posted operating
income of $25.3 million up from $22 million in the year-ago
quarter. Operating margin expanded 40 basis points to 3.1% year
The International division's revenue dipped 8%
to $758.7 million, whereas it fell 9% in constant currency. The
overall sales in the European contract channel dropped in the
mid-single digits as the growth witnessed in Germany was offset by
soft sales in other countries. Asia contract channel sales
increased marginally. European direct channel experienced a sales
decline but the rate of fall decelerated sequentially. The retail
channel sales slipped in Europe due to softness witnessed across
Sweden and France.
The division posted an operating income of $4.8 million, up
significantly from a loss of $2.1 million in the year-ago quarter.
At the end of the quarter, total store count at the International
division stood at 124. During the quarter, the company opened 1
About the Merger
Office Depotand OfficeMax Incorporated ( OMX )decided to merge
their businesses in order to better compete with the industry
bellwether, Staples Inc . ( SPLS )and online
rivalssuch as Amazon.com Inc. ( AMZN ). The decision
augurs well for both the companies, which have been grappling with
The all-stock merger agreement, which involves 2.69 Office Depot
shares for each share of OfficeMax, would resultin cost synergies
of $400 to $600 million yearly by the third year from the time of
closing of the transaction. The transaction is expected to be
concluded by the end of 2013.
Other Financial Details
This Zacks Rank #5 (Strong Sell) company ended the quarter with
cash and cash equivalents of $549.3 million, long-term debt of
$479.8 million and shareholders' equity of $635.5 million,
excluding non-controlling interest of $115,000.
Net cash used in operating activities was $93.9 million from
operating activities, while capital expenditures were $28.6
million, resulting in a negative free cash flow of $122.5
million.AMAZON.COM INC (AMZN): Free Stock Analysis
ReportOFFICE DEPOT (ODP): Free Stock Analysis ReportOFFICEMAX INC (OMX): Free Stock Analysis ReportSTAPLES INC (SPLS): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment