Office Depot Partners with Newell

Zacks

Office Depot Inc. (ODP), a global supplier of office products and services, recently announced a new deal with Newell Rubbermaid Inc. (NWL). As per the new deal, Rubbermaid storage products will be available at Office Depot brick and mortar and online stores.

Office Depot believes that the new deal will drive growth opportunities and open several avenues for the company in the storage and organization solution industry. The company already sells a few Rubbermaid products at its stores and is looking to expand the range of products given the growth prospects in the category.

Newell Rubbermaid foresees several new prospects across the industry and believes that the deal will help expand its customer base and drive the company’s sales going forward.

Office Depot recently posted first-quarter 2012 earnings of 5 cents a share, a sharp improvement from the break-even results in the comparable prior-year quarter. However, reported earnings came in line with the Zacks Consensus Estimate.

The company’s total revenue of $2.87 billion decreased approximately 3% year over year and was almost in line with the Zacks Consensus Estimate.

Management now expects total sales for the second quarter of 2012 to decline 3% from the year-ago quarter, and further hinted that adjusted operating income would decline $20 million to $30 million. Further, Office Depot forecasted that the North American Retail division’s comparable-store sales would decline in the second quarter, and expects International division sales to fall 4% to 5% in constant currency.

Conclusion                                      

We believe that the company’s strategic plan to enter the fast-growing storage and organization industry will prove to be accretive to sales growth.

However, due to high exposure to international markets, Office Depot remains prone to currency fluctuations. The weakening of foreign currencies against the U.S. dollar may require the company to either raise prices or see its profit margins contracting in locations outside of the U.S. An increase in price may have an adverse impact on the demand for the products.

Office Depot faces stiff competition from office supply retailers, such as OfficeMax Inc. (OMX) and Staples Inc. (SPLS), and wholesale clubs, discount stores, mass merchandisers, computer and electronics superstores on attributes such as store format, pricing strategy and in-stock consistency. This may weigh upon the company’s results.

The company carries a Zacks #3 Rank, which implies a short-term Hold rating. However, the company holds a long-term Underperform recommendation.

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