Office Depot: Retail Casualty

Office Depot (ODP) is the latest office supply retailer to take a hit as small business customers and everyday consumers cut back on everything from paper clips to copy paper.

Yesterday, the Florida-based firm said it would close 112 stores, mostly over the next three months plus an additional 6 distribution facilities. New store openings were slashed for 2009 were slashed from 40 to 20, and the closings mean fourth-quarter charges of $270 million to $300 million starting in the fourth quarter. Job cuts could total 2,200.

The news sent shares up almost 11 percent yesterday as analysts assess the changes.

Goldman Sachs:

We view this program favorably; while we had expected store closings, the company is shutting more stores than the 50-75 we anticipated, with a manageable cash hit, an important consideration as the firm must keep its credit line below stipulated caps or risk violation of covenants.

Goldman says it expects a favorable reaction in Office Depot shares, but warns the announcement "does not significantly counteract the tough reality of low underlining profitability, and obviously does not remedy cyclical challenges."

As such, it left a "neutral" rating on the firm, and on rivals OfficeMax (OMX) and Staples (SPLS).