Office Depot 1Q profit falls on N. American sales decline
WEST PALM BEACH, Fla.—Office Depot Inc., the nation's second biggest office-supply chain, said Tuesday its first-quarter profit dropped 55 percent due to North American sales declines, but the results still topped Wall Street's expectations. Its shares rose more than 10 percent.
The Delray Beach, Fla.-based company said earnings dropped to $68.8 million, or 25 cents per share, compared with $153.8 million, or 55 cents per share, a year earlier.
Sales dipped 3 percent to $3.96 billion from $4.09 billion.
Excluding items, net income dropped to 29 cents per share from 59 cents per share.
Analysts surveyed by Thomson Financial forecast a profit of 22 cents per share on revenue of $4.07 billion.
Its shares rose $1.04, or 8.7 percent, to close at $13 Tuesday after rising as high as $13.85 earlier in the day. They are still well below their 52-week high of $36.84.
"Like you, we are not satisfied with the performance of the company or our share price," Steve Odland, the company's chief executive, said during a conference call.
However, he said: "We remain confident that we have a business model and plans to execute our key initiatives ... and continue to create value for our shareholders."
The office supply retailer has been hit hard by the sluggish economy and lagging housing markets in North America, where sales were down 7 percent to $1.7 billion.
Sluggish sales in Florida and California continued to hurt Office Depot's profit margin as small business customers were affected by "difficult housing-related economic conditions," the company said in its earnings release. Combined, the two states represented about 26 percent of total store sales.
In February, the company said its fourth-quarter profit slid 85 percent as sales slumped in the two states.
The company opened 45 new stores in North America during the quarter and plans to open an additional 25 to 30 stores this year. But plans for more openings have been cut back "in response to the current economic environment," said North American retail division president Chuck Rubin.
First-quarter sales for the North American business solutions division were $1.1 billion, down 5 percent compared to the same period a year ago. Operating profit was $60 million for the quarter compared to $72 million for the same period last year, but $59 million higher than the fourth quarter of 2007, the company said.
The company's international division reported a sales increase of 6 percent versus last year, but sales in local currency decreased by 4 percent, largely driven by an economic slowdown in the U.K.
The U.K. makes up about a third of the division sales but almost half of its operating profit, said Charlie Brown, head of international operations.
Odland said sales would likely remain sluggish through the second quarter, but he expected profit margins to grow later in the year.
A Deutsche Bank analysts report noted that the "good news" is that the company's fourth quarter profits "may have marked the bottom in profitability trends, but it's clear that (Office Depot) has a long way to go before we can call it a full recovery."
Last week, Office Depot announced that its shareholders re-elected all 12 of the office supply retailer's directors at its annual meeting. A week earlier, a dissident shareholder group dismayed with the company's current management had called for shareholders to replace Odland and former Chairman and CEO David I. Fuente.
The Woodbridge Group later canceled its proxy contest for the two board seats, noting it had sent its intended message that it was displeased with the company's lagging sales and leadership.
Office Depot, the nation's second-largest office supplies retailer behind Framingham, Mass.-based Staples Inc., has annual sales of about $15.5 billion.
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AP Business Writer Michell Chapman in New York contributed to this report
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