Office Depot's Earnings Decline 9%, Top Estimates

Office Depot reported a 9% decline in Q3 net income, on a soft retail environment in the U.S. and Canada (full earnings call transcript later today). The company had delayed its latest quarterly results on October 30 due to "the timing of the recognition of certain vendor-program funds," leading shares lower 14% (full summary). Tuesday Office Depot restated its results going back to 2Q06, for the same reason it delayed its latest quarterly report. In the latest quarter, net income was $117.5, good for adjusted EPS of $0.43, versus restated net of $129.1 (adjusted EPS of $0.45) a year ago. Total sales rose 2% to $3.94 billion, on overseas growth of 13%. North American Retail Division were flat at $1.8 billion, while same store sales fell 5% Y/Y. Consensus analyst estimates were for adjusted EPS of $0.40 on sales of $3.95 billion. The earnings restatement shaved $0.04 a share in FY2006 earnings and $0.02 a share in first half 2007 earnings. The company also cut in half its number of planned new store openings through 2008. According to FTN Midwest Securities analyst Anthony Chukumba, who rates the shares a hold, Office Depot has "gone overboard with cost-cutting, and it affects the in-store experience." The company plans to continue reducing CapEx through 2008, down to $400, versus an expected $450-$475 million for CapEx in 2007. Shares were unmoved in pre-market trading; ODP is down nearly 51% YTD.

Sources: Press release, Bloomberg, MarketWatch, Reuters
Commentary: Office Depot Delays Q3 Earnings; Shares Plunge 14% • Office Depot Is Cheap Relative To Peers Staples and OfficeMax • Analysts Cut Office Depot Estimates: Expecting Panic Selling, Possible Bounce
Stocks to watch: ODP. Competitors: SPLS, OMX. ETFs: XRT
Earnings call transcript: Office Depot Q2 2007 Earnings Call Transcript

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