OFFICE DEPOT's NET DROPS 55%

[Anonymous]

Office Depot’s Net Drops 55%
Office Depot 1Q profit falls on N. American sales decline
Office
Depot Inc. reported a 55% drop in first-quarter net income as weakness
in Florida and California dug into sales, while competitors continued
to encroach on the retailer’s territory and new stores cannibalized
existing ones.The office-supplies giant posted net income of $68.8
million, or 25 cents a share, down from $153.8 million, or 55 cents a
share, a year earlier. Excluding charges, profits were 29 cents
compared with 59 cents.

Revenue fell 3.2% to $3.96 billion from
$4.09 billion. The mean estimates of analysts polled by Thomson Reuters
were for earnings of 22 cents a share on $4.07 billion in revenue.
Gross profit margin slipped to 29.5% from 31%.Sales in the North
American retail division slid 7.3% as earnings plunged 46% and
same-store sales dropped 9%. Weakness in Florida and California
continued to “weigh heavily” on results amid difficult housing-related
economic conditions. The two states represent about 26% of total store
sales and 35% of the same-store-sales drop. Results were also hurt by
competitors, new stores cannibalizing existing ones, and a shift of the
Easter holiday to the first quarter from the second.

Sales in
the company’s North American business-services segment slumped 5% amid
a 17% drop in profits as the segment also saw its results stung by
weakness in Florida and California.International sales increased 5.7%,
though local-currency sales fell 4% amid weakness in the U.K. and
France, as earnings dropped 27%. Office Depot said the economic
slowdown continues to affect operations in the U.K., and sales were
also impacted by the timing of Easter while earnings were hurt by
continued investment and consolidation of facilities in Europe.Earlier
this month, dissident shareholders abruptly dropped a proxy battle
against Office Depot just days before its annual meeting, contending
the effort had served its purpose of waking up shareholders. In the
end, all 12 incumbent directors were re-elected. But the dissident
shareholders, led by Woodbridge Equity Fund LLLP and Levitt Corp. noted
last week that about 30% to 40% of shareholders either voted against or
withheld votes from several directors. The groups said those results
“sent the board a strong message of disapproval and call for
change.”Woodbridge and Levitt had asked that shareholders withhold
their votes for Chairman and Chief Executive Steve Odland and former
Chairman David Fuente, taking Office Depot officials to task for using
economic weakness as an excuse for the company’s “persistent
underperformance.” Still, the company has maintained it is taking every
step necessary to improve performance and increase shareholder value.
Office Depot is amid a turnaround plan that includes refocusing sales
to micro-businesses at its North American stores and streamlining its
global supply chain.Meanwhile, adding to Office Depot’s financial
troubles, Standard & Poor’s earlier this month cut its corporate
credit rating on the company to junk status, citing weakness in North
America and “expectations that challenging economic trends” will
continue hurting the company this year.

[Author]

April 29, 2008 at 11:48 AM