Earnings Preview: Office Depot

Jul.27.09 | About: Office Depot (ODP)

Office Depot (NYSE:ODP) is expected to report Q2 earnings before the market open on Tuesday, July 28 with a conference call scheduled for 9:00 am.

Guidance

Analysts are looking for a loss of (12c) on revenue of $2.88B. The consensus range is (16c)-(8c) for EPS, and revenue of $2.74B-$3.05B, according to First Call. In April the company said it planned to open "12 or fewer" new stores this year and said it's likely there will be an EBIT loss as it experiences seasonal sequential declines in EBIT from Q1 to Q2, and that it may use some cash in Q2 due primarily to the normal back-to-school inventory build. In addition, due to intense price competition, Office Depot is this year planning to shutter all its Japanese stores. Helping during the recession has been a $350M capital infusion from London-based private equity fund BC Partners, according to a June 24 "Heard on the Street" column in the Wall Street Journal. Separately, the attorney general's office in Colorado is conducting an investigation into the company's pricing practices.

Analyst Views

KeyBanc, which initiated shares with a Hold rating on July 20, believes Office Depot does not face a near-term bankruptcy risk. The firm sees signs of operating income improvement, and that despite comp weakness, retail store closures are positioning the segment for improved profitability.