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Office Depot to Shed Business

Zacks Equity Research

Office Depot Inc. (ODP) – one of the leading suppliers of office products and services across the globe, announced that it is selling its Hungary business to Central Fund Venture Capital Fund. However, financial terms of the deal were not disclosed.

As per the agreement, Central Fund will provide support to Office Depot's existing customers in Hungary and will be using Office Depot's trade names and receive sourcing services. Office Depot commenced its operations in Hungary in 1997 through licensed operation and later transformed the business into its wholly owned subsidiary in 2004.

Office Depot is repositioning itself to keep afloat in a difficult consumer environment. The company is containing costs, closing underperforming stores, reducing exposure to higher dollar-value inventory items, shuttering non-critical distribution facilities, and focusing on providing innovative products and services, which should all contribute to margin improvements.

We believe that the move reflects the company strategic decision to fuel growth by tightening investment in sections of the company that no longer contribute significantly to its growth or no longer remain a part of its core growth strategies.

The company is contemplating to strengthen its global footprint and reviewing capital-efficient opportunities to expand its reach in Eastern Europe, Asia and South America. The company believes that India and China will provide significant growth opportunities.

Moreover, Office Depot is focusing on smaller format stores and enhancing shoppers’ experience through store renovations. This in turn, will facilitate the company in improving store sales productivity.

Currently, we maintain our long-term ‘Neutral’ recommendation on the stock. Moreover, Office Depot, which competes with OfficeMax Inc. (OMX) and Staples Inc. (SPLS), holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.

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