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Depot shares hit by weak Q3 forecast
September 2007 — Delray Beach (FL): Office Depot’s share price dropped sharply by 8.7 percent from $21.9 to $20.03 on Friday.
The
fall came a day after Depot senior management told the Goldman Sachs
retailing conference that they expect to see a double-digit decline in
Q3 earnings. Depot’s CFO Patricia McKay said that the company
anticipates both Q3 and Q4 earning to fall below 2006 levels (Q3 net
earnings were $133 million).The company attributes the decline to weak
performance by its North American retail stores and its delivery
business. These have been negatively affected by “small business
spending weakness and pressure from a softening housing market,” says
Citigroup analyst Bill Sims.Citigroup’s most recent analysis on
Depot also points out that “a greater promotional atmosphere is
increasingly pressuring margins”.However the analysts believe that
Depot’s soft earnings are a symptom of the broader macroeconomic
environment and insist that the retailer is neither ceding massive
share nor facing major structural problems.In light of its weak
performance, Depot has re-evaluated some of its expansion plans in a
bid to curb costs. Depot has cut the number of new stores it will open
this year to roughly 100 from the originally planned 150. And
similarly, 2008 will now see the opening of between 125 and 150 new
stores, rather than the previously announced figure of 200.Depot rivals
Staples and OfficeMax also saw their stock fall on Friday. Overnight,
Staples stock fell by 2.9 percent from $23.08 to $22.40 and OfficeMax’s
stock fell by 4.8 percent from $35.04 to $33.34.Staples boss Ron
Sargent, also speaking at the retail conference, said that although the
Framingham-based retailer has observed the effect of the sagging US
housing market on its retail consumers, it has not observed the same
effect on its small business customers.
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