OFFICE DEPOT TO CLOSE 27 STORES

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Office Depot to close 27 stores
SEP O5 Office Depot Inc. said Monday it is closing 16 stores in North
America and 11 abroad as part of a larger restructuring that will cost
about $82.2 million and eliminate its Viking brand in the United States.

In addition, the retailer said it will record substantial third-quarter
charges to account for poor returns at stores it bought from Toys ‘R Us
Inc. last year and struggles at its Tech Depot unit.

The company did not provide the locations of the stores to be closed,
saying it needs time to notify affected employees and landlords. Office
Depot did not say how many jobs would be affected by the closings.
The office supplies retailer said in a regulatory filing that it will
close “essentially all” of the North American locations by the end of
October and the remainder in the fourth quarter. The company predicted
that the closures will cost about $30.1 million, including lease
liabilities of $22.5 million.

Internationally, Office Depot plans to close 11 stores and one
warehouse, relocate another warehouse, combine certain call centers and
end contract business in one country. These changes will cost about
$32.8 million and should be complete by the end of 2005, but may
continue into 2006, Office Depot said.

“The closures follow a review of current performance, as well as an
assessment of likely future performance,” Office Depot said in the
filing.

The company said it also plans to further integrate and combine
European operations and has eliminated certain management and
“functional positions” as part of this restructuring.

In addition, Office Depot said it is eliminating its Viking brand in
the United States and will discontinue the associated catalogue. The
company said the distinction between the Viking and Office Depot
catalogues was unclear to customers and cutting out the Viking-unique
inventory will eliminate the need for two warehouses.

Office Depot said it also plans to reorganize certain warehouse
staffing, combine call centers and relocate certain sales offices as
part of the brand elimination. These actions will cost about $19.3
million and be complete by mid-2006, Office Depot said.

The retailer said it will continue the Viking brand in Europe, where it has a large following.

Of the $82.2 million, Office Depot expects to record $65.3 million in the third quarter and $15.9 million in the fourth quarter.

Office Depot also will record a third-quarter charge of $80.1 million
before taxes related to the Toys ‘R Us stores. The company bought 124
stores in March 2004 for $197 million, planning to turn 50 of them into
Office Depot stores and sell the rest. Office Depot said it has yet to
dispose of 16 of the stores and that many of the locations that have
been switched over are likely to continue posting operating losses and
negative cash flows in the third quarter despite recent merchandising
and marketing changes.

The company did not say in the filing if any of the other charges were estimated before taxes.

The Tech Depot devaluation will cost $41.4 million in the third
quarter, Office Depot said, explaining that the technology Web site’s
shift to from a business-to-consumer to a business-to-business model
has not improved productivity or increased sales as expected. The
company has changed Tech Depot’s management and said it is in the
process of shifting it to higher-margin products.

In all, the company said it expects to record charges of $276.9 million
in 2005, with third-quarter charges of $252.1 million and
fourth-quarter charges of $24.8 million. These figures include
additional write offs for assets, lease terminations, changes in
estimates and other items.

Delray Beach, Fla.-based Office Depot has operations in 23 countries
and annual sales of nearly $14 billion. As of June 25, there were about
1,011 Office Depot retail stores in North America and more than 200
abroad.

Shares of Office Depot were down 13 cents at $31.05 in midmorning trading on the New York Stock Exchange.
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More Cuts at Office Depot

Office Depot  announced a slew of store closings and
consolidations Monday as new CEO Steve Odland continues to reshape the
retail chain.

The No. 2 office supply retailer will close 16 underperforming stores
in North America and 11 stores and one warehouse in its international
division, according to a regulatory filing. It will also relocate one
international warehouse, consolidate some call-center facilities and
sell a contract business.

The domestic store closings will cost an estimated $30.1 million, while
changes in the international division will cost $32.8 million. Office
Depot expects to record the bulk of charges related to these actions in
its third quarter, but some of the costs will be recorded later.

The retailer plans to consolidate its Office Depot and Viking catalogs
into one Office Depot catalog. It will stop selling Viking-unique
inventory, discontinuing those products in the U.S., but it will keep
the brand at its European stores where it has enjoyed more success.

It also said it has disposed of all but 16 of the 124 Kids R Us
locations it bought from Toys R Us  last March. Office Depot
bought the stores the same month that Odland replaced its former chief
executive, Bruce Nelson.

Nelson resigned in October, after Office Depot lowered its guidance for
its third quarter and the full year, and reported a second-quarter
earnings miss. It suffered 16 straight quarters of declines in sales at
stores open at least a year from 2000 through 2003.

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September 13, 2005 at 10:43 AM