Office Depot and OfficeMax Feel Profit Pressure In Q3, 2013

[Anonymous]

Office Depot and OfficeMax Feel Profit Pressure In Q3, 2013 
By Andy Braithwaite

6 November 2013, Office Depot and OfficeMax's Q3 earnings both came up well short of Wall Street's expectations.

Office Depot reported adjusted earnings per share (EPS) of $0.02 in the third quarter, compared with analyst consensus of $0.06, while OfficeMax's adjusted EPS of $0.15 was some way off the market expectation of $0.22.

Depot fared better on the top line, matching Wall Street's $1.6 billion prediction, but 'Max's Q3 sales of $1.68 billion missed by about $20 million.

Both resellers continue to see their sales fall in the low single digits, which is filtering through to the bottom line. In addition, changes in the product mix are negatively impacting gross margins.

There is now a single investor website for both companies where you can find the full Office Depot and OfficeMax third-quarter results. Selected highlights are below:

Office Depot Q3 sales of $2.6 billion were 3% lower than in 2012.
    Adjusted EBIT fell 22% to $42 million. Efficiencies of $33 million were offset by sales volume declines and gross margin/mix decreases. In addition, $11 million in EBIT was 'lost' from the sale of the Mexican joint venture earlier this year.

North American Retail Store comps were negative 2%, but Depot said it had a "strong" back-to-school season underpinned by the promotion with pop group One Direction.
    There was growth in tablets and mobility products, but paper and printer sales were down.

North American Business Solutions Division (BSD) Q3 sales declined 2% to $811 million.
    The Contract channel saw sales fall in the low single digits, mainly due to technology sales restructuring and federal accounts weakness. Excluding these, sales were essentially flat.
    BSD reported growth in the schools channel and with state and local government customers.

Online sales in the Direct channel grew in the mid-single digits.

International Sales were $681 million, a drop of 4% in local currencies.
    There were declines in all three channels – Contract, Direct and Retail.
    Depot is taking aggressive pricing actions in the ink and toner category in several European markets in order to be the "destination retailer" for these products.

    European retail sales declined due to store closures in Sweden, but retail sales in France improved.

OfficeMax Q3 sales of $1.66 billion, an adjusted fall of 3.4%.
    Adjusted operating profit slid by a third to $28.4 million, mainly due to weakness in the Contract division.

Contract division Total Q3 sales were $842 million. Sales fell 3.6% in the US and 0.8% in international markets.

    There were declines in traditional categories such as ink, toner and paper, partially offset by growth in print and document services, and facilities and jan/san products.
    Sales through the OfficeMax.com website grew in the double digits.

Retail Q3 sales were $823 million. Comps declined 2.8% in the US and 2.2% in Mexico.
    The back-to-school season was described as "solid", with customer margin rates maintained despite the promotional "penny deals" campaign.

    A new Services Center initiative – featuring a portfolio of more than 40 services – was rolled out in the quarter, while the number of Business Solutions Center retail outlets has increased to four.

[Author]

November 12, 2013 at 11:43 AM