Office Depot to Close 126 Stores

Boca Raton, Fla. To free up capital and more successfully manage the chain as it operates in the challenging economy, Office Depot said Wednesday that it has updated its strategic review by significantly reducing its planned and existing store fleet moving forward.

Under the new plan, the retailer plans to close 112 underperforming stores in North America over the next three months. This will reduce the region’s store base to 1,163 locations. It will also close another 14 stores through 2009 as their leases expire.

New store openings will also be cut from 40 planned stores to 20 locations. These revisions will cut the retailer’s capital spending in 2009 to less than $200 million. The original plan expected spending to be $275 million.

The chain will also close six of its 33 distribution centers in North America, and plans to combine its disparate supply chain systems.

These changes are expected to provide savings of $270 million to $300 million for the fourth quarter of 2008 and into 2009. These actions should benefit 2009 EBIT and cash flow by approximately $90 million and $70 million, respectively. The benefit to cash flow is primarily a result of lower 2009 capital spending, payroll savings and operational improvements from store closures.

The company is also evaluating further actions, including the assessment of tangible and intangible assets, including the annual goodwill evaluation, and potentially restructuring businesses.