Office Depot Q2 Adj. Profit Matches View, But Sales Miss

(RTTNews) - Office products supplier Office Depot, Inc. (ODP) reported a loss for the second quarter that narrowed from last year on positive same-store sales growth and higher margins that helped offset a decline in sales. Adjusted earnings per share matched analysts' expectations, while quarterly revenues missed their estimates.

Roland Smith, chairman and chief executive officer for Office Depot said, "In the second quarter we significantly improved operating income versus last year, primarily due to continued excellent execution on our merger integration, synergies and efficiencies, and positive same-store sales growth."

The Boca Raton, Florida-based company, which is being acquired by Staples Inc. (SPLS), reported second-quarter net loss of $58 million or $0.11 per share, narrower than net loss of $190 million or $0.36 per share in the prior-year quarter.

Excluding items, adjusted net income for the quarter was $32 million or $0.06 per share, compared to adjusted loss of $12 million or $0.02 per share in the year-ago quarter.

On average, 15 analysts polled by Thomson Reuters expected the company to report earnings of $0.06 per share for the quarter. Analysts' estimates typically exclude special items.

Total company sales for the quarter decreased 10 percent to $3.44 billion from $3.84 billion in the same quarter last year and missed analysts' consensus revenue estimate of $3.50 billion.

The decline in sales were driven primarily by planned store closures and foreign currency translation.

Total adjusted sales declined 3 percent from last year, excluding the impact of foreign currency translation, U.S. retail store closures, and sales from the company's interest in the Grupo OfficeMax joint venture which was sold in August 2014.

North American retail division sales declined 8 percent from the year-ago period to $1.34 billion, primarily due to planned store closures.

However, same-store sales increased 1 percent, driven largely by transferred sales from closed stores and increased operational effectiveness.

The North American business solutions division's sales declined 4 percent from the prior-year quarter to $1.43 billion. Sales declined 3 percent in constant currency.

The decline in sales was mostly attributable to the scheduled transition out of certain large customers that purchased under a legacy OfficeMax Tier 1 buying arrangement and lower sales in Canada.

The International division recorded a 20 percent decline in sales to $664 million, with a negative impact of foreign currency translation. International sales declined 6 percent in constant currency.

Gross profit margin for the quarter expanded 70 basis points from last year to 23.7 percent.

Looking ahead to fiscal 2015, Office Depot said it continues to expect total company sales to be lower than 2014.

The lower outlook is primarily due to the company's decision to close certain stores, the negative impact of currency translation, business disruption from the announcement of the pending acquisition by Staples, and continued challenging market conditions.

Office Depot continues to expect to achieve total annual run-rate merger synergy benefits of more than $750 million by the end of 2016. The company began 2015 with over $500 million in run-rate merger synergy benefits.

Additionally, in 2015 the company expects to incur about $100 million of expenses related to the pending acquisition by Staples, primarily employee retention costs and advisory fees, $49 million of which were incurred in the first half of 2015.

Smith added, "We are pleased that our shareholders overwhelmingly approved the pending acquisition by Staples on June 19th. We remain on track with the regulatory review process, and we continue to anticipate this transaction will close by the end of 2015."

ODP closed Monday's trading at $7.90, down $0.10 or 1.25 percent on a volume of 3.90 million shares.