On Feb 28, 2014, we issued an updated research report on Office Depot, Inc. (ODP). Ever since the company posted dismal fourth-quarter 2013 results and provided a cautious outlook for 2014, the Zacks Consensus Estimate has been trending downward. The soft industry trends and intense competition from online giants have led to the decline in sales at Office Depot.
Office Depot posted adjusted fourth-quarter 2013 loss per share of 3 cents as against the Zacks Consensus Estimate of earnings of 3 cents. Revenues of $3,486 million also fell short of the Zacks Consensus Estimate.
Further, management foresees headwinds across product lines and distribution channels during 2014. Therefore, Office Depot projects total revenue for 2014 to be lower than 2013 pro-forma combined sales while adjusted operating income is expected to be at least $140 million.
Consequently, over the last 7 days, the Zacks Consensus Estimate has fallen 60.7% to 11 cents for 2014 while it declined 40% to 33 cents for 2015.
Demand for office products (paper-based) has been decreasing due to constant technological advancements. Smartphones, tablets and laptops are fast emerging as viable substitutes for paper-based office supplies. Moreover, there has been persistent weakness in the office products sector due to decline in business and consumer spending, given the global meltdown and deterioration of credit markets resulting in sluggish industry trends.
Due to the above-mentioned factors, the company’s top line has suffered, as was evident in the past few quarters. The company delivered negative earnings surprises in the trailing four quarters with an average miss of 122.2%.
Moreover, the office supplies industry remains a highly competitive arena, given the presence of industry bellwethers like Staples, Inc. (SPLS) and online giants like Amazon.com Inc. (AMZN). The company recently merged with OfficeMax to capture incremental market share, streamline the cost structure and compete better with peers.
At present, Office Depot carries a Zacks Rank #5 (Strong Sell).
Key Picks from the Sector
Another stock worth considering in the retail sector is Barnes & Noble, Inc. (BKS), which sports a Zacks Rank #1 (Strong Buy).