Office Depot Reports Dismal Quarter

• By Zacks Equity Research
• On 9:48 am EDT, Friday October 30, 2009

Office Depot Inc. (NYSE: ODP - News), one of the leading suppliers of office products and services, reported another dismal quarter, as the fall in its top-line continues. Total revenue for the third-quarter declined 17.2% year over year to $3,029.2 million. 

Consequently, gross profit slipped 16%, despite a 17.6% drop in cost of goods sold. Even the fall of 15.8% in operating expenses, excluding one-time items, could not halt the quarterly loss. 

The company delivered a loss of 8 cents a share, sharply down from a loss of 1 cent posted in the prior-year quarter, but fared better than the Zacks Consensus Estimate for a 10-cents loss. 

On a reported basis, including one-time items, quarterly loss widened to $1.51 per share from a loss of 2 cents recorded in the year-ago quarter. 

North American Retail division’s revenue dipped 18.4% to $1,288.3 million driven by 14% drop in comparable-store sales and opening of 117 fewer stores in the quarter. However, operating profit more than doubled to $35.1 million due to rise in product margins for the fifth consecutive quarter, closing of less profitable stores and lower operating expenses. 

North American Business Solutions division’s revenue slipped 16.5% to $880.4 million due to a decline in the number of consumer transactions. Operating profit dipped 45.4% to $21.3 million on falling sales and product margins, and rising costs. 

International division’s revenue fell 16% to $860.6 million, whereas operating profit fell 4.7% to $34.2 million due to lower operating expenses. 

Office-supply retailers have been grappling with sluggish demand for big-ticket items like furniture and computers, as consumers and smaller businesses cutback on their spending in the downturn. 

The operator of office supply stores under brand names, such as Office Depot, Foray, Ativa, Break Escapes, Worklife, and Christopher Lowell, generated free cash flow of $140.5 million during the quarter, after reporting a negative free cash flow of $14.3 million in the previous quarter.

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