DOW JONES NEWSWIRES
Office Depot Inc. (NYSE:ODP) (ODP) reported a 55% drop in first-quarter net income as weakness in Florida and California dug into sales, while competitors continued to encroach on the retailer's territory and new stores cannibalized existing ones.
The office-supplies giant posted net income of $68.8 million, or 25 cents a share, down from $153.8 million, or 55 cents a share, a year earlier. Excluding charges, profits were 29 cents a share versus 59 cents.
Revenue fell 3.2% to $3.96 billion.
The mean estimates of analysts polled by Thomson Reuters were for earnings of 22 cents a share on $4.07 billion in revenue.
Gross profit margin dipped to 29.5% from 31%.
Sales in the North American retail division slid 7.3% as earnings plunged 46% and same-store sales dropped 9%. Weakness in Florida and California continued to "weigh heavily" on results amid difficult housing-related economic conditions. The two states represent about 26% of total store sales and 35% of the same- store-sales drop. Results were also hurt by competitors, new stores cannibalizing existing ones, and a shift of the Easter holiday to the first quarter from the second.
Sales in the company's North American business-services segment slumped 5% amid a 17% drop in profits as the segment also saw its results stung by weakness in Florida and California.
International sales increased 5.7%, though local-currency sales fell 4% amid weakness in the U.K. and France, as earnings dropped 27%. Office Depot (NYSE:ODP) said the economic slowdown continues to impact operations in the U.K., and sales were also affected by the timing of Easter, while earnings were hurt by continued investment and consolidation of facilities in Europe.
Earlier this month, dissident shareholders abruptly dropped a proxy battle against Office Depot (NYSE:ODP) just days before its annual meeting, contending the effort had served its purpose of waking up shareholders. In the end, all 12 incumbent directors were re-elected. But the dissident shareholders, led by Woodbridge Equity Fund LLLP and Levitt Corp. (NYSE:LEV) (LEV) noted last week that about 30% to 40% of shareholders either voted against or withheld votes from several directors. The groups said those results "sent the board a strong message of disapproval and call for change."
Woodbridge and Levitt had asked that shareholders withhold their votes for Chairman and Chief Executive Steve Odland and former Chairman David Fuente, taking Office Depot (NYSE:ODP) officials to task for using economic weakness as an excuse for the company's "persistent underperformance." Still, the company has maintained it is taking every step necessary to improve performance and increase shareholder value. Office Depot (NYSE:ODP) is amid a turnaround plan that includes refocusing sales to micro-businesses at its North American stores and streamlining its global supply chain.
Meanwhile, adding to Office Depot's (NYSE:ODP) financial troubles, Standard & Poor's earlier this month cut its corporate credit rating on the company to junk status, citing weakness in North America and "expectations that challenging economic trends" will continue hurting the company this year.
Shares of Office Depot (NYSE:ODP) closed Monday at $11.96, and there was no premarket activity.
-By Donna Kardos, Dow Jones Newswires; 201-938-5963; donna.kardos@dowjones.com
(END) Dow Jones Newswires 04-29-08 0754 Copyright (c) 2008 Dow Jones & Company, Inc.
