S&P DOWNGRADES OFFICE DEPOT AND OFFICEMAX STOCKS

[Anonymous]

S & P DOWNGRADES OFFICE DEPOT AND OFFICEMAX STOCKS

Standard & Poor’s Ratings Services lowered its credit ratings on Office Depot Inc. ODP -4.01% and OfficeMax Inc. OMX -3.05% further into junk territory, saying it believed the office products retailers were particularly susceptible to the weaker economic climate.

For Office Depot, analyst Jerry Phelan said the action highlighted the company’s "inability to grow sales despite a moderate employment improvement, low profitability which could decline further if economic conditions deteriorate and weak credit protection measures."

He also noted the company’s business risk profile is weak, largely due to significant competition; the strong bargaining power of large corporate customers; and low, inconsistent profitability. Similar concerns were also cited for peer OfficeMax’s downgrade.Both corporate credit ratings were lowered by one notch to B-, which is six levels into junk. The outlook is stable, reflecting S&P’s expectation for adequate liquidity for both retailers.

Office Depot has struggled in recent years, as the recession exacerbated the glut of stores in an office supply market where Staples Inc. SPLS -2.31% dominates and third-largest player OfficeMax has corrected past problems. Still, OfficeMax has reported lower full-year sales the last three years.Office Depot in April reported it swung to a surprise first-quarter loss on weaker sales and a higher tax rate, while OfficeMax’s first-quarter earnings dropped 54% on lower sales.

Second-quarter results from Office Depot are expected July 26, while OfficeMax is scheduled to report results on Aug. 2.Office Depot’s shares were up 2 cents to $4.17 in recent trading, while OfficeMax was down 1.8% to $7.59 a share. Both stocks are down by double-digits so far this year.

http://www.marketwatch.com/story/office-depot-rating-trimmed-by-sp-2011-07-06
Office Depot rating trimmed by S&P
Standard & Poor’s Ratings Services lowered its ratings on Office Depot Inc. ODP -4.01% further into junk, saying it believed office products retailers were particularly susceptible to the weaker economic climate.

Analyst Jerry Phelan said the action highlighted the company’s "inability to grow sales despite a moderate employment improvement, low profitability which could decline further if economic conditions deteriorate and weak credit protection measures."He also noted the company’s business risk profile is weak, largely due to significant competition; the strong bargaining power of large corporate customers; and low, inconsistent profitability.S&P lowered Office Depot’s ratings by one notch to B-, which is six levels into junk. The outlook is stable, reflecting S&P’s expectation for adequate liquidity.

Office Depot has struggled in recent years, as the recession exacerbated the glut of stores in an office supply market where Staples Inc. SPLS -2.38% dominates and third-largest player OfficeMax Inc. OMX -3.31% has corrected past problems.Office Depot in April reported it swung to a surprise first-quarter loss on weaker sales and a higher tax rate. Results for the second quarter are expected July 26.Shares were up 1.4% to $4.22 in recent trading, rising along with the broader market. The stock is down about 22% this year and is sharply off the all-time high of over $46 a share in 2006.

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July 21, 2011 at 8:00 AM