Office Depot offers grim outlook

DELRAY BEACH, Fla. Office Depot reported dismal financial results this morning, as two of its three divisions saw sales and profits declined during its second quarter ended June 28.

Total sales decrease 1% to $3.6 billion, and a net loss of $2 million was a sharp reversal from a profit of $106 million a year earlier. The biggest disappointment was the company’s North American retail division where sales declined 6% to $1.4 billion and same-store sales declined 10% following a 9% decline in first quarter same-store sales. The division had a quarterly operating loss of $4 million compared to a $99 million operating profit a year earlier.

The company blamed poor results, which were preannounced on July 8, on “persistent weakness in Florida and California,” and said outside of those two states, “a further decline in demand has occurred as this economic slowdown has spread to most regions of the country.”

Sales and profits in the company’s North American business solutions division also declined, but the operating segment remained profitable, although at a reduced level. Sales declined 5% to $1.1 billion and operating profit of $49 million was well below the prior year’s $78 million.

“Sales were negatively impacted by continued softness among small to medium-sized business customers in Florida and California, which account for approximately 30% of the division’s sales,” the company said.

The lone bright spot in the quarter was the international division where sales increased 13% to$1.1 billion and operating profits grew 21% to $51 million.

From the liquidity standpoint, the company noted two highlights. It disclosed that its Mexican joint venture partner had offered $430 million to buy out Office Depot’s stake in the joint venture, but it had yet to engage in substantive discussions regarding the proposed deal. Office Depot also said given the uncertain economic environment it expected to have in place by the end of the third quarter a credit facility in excess of $1 billion to replace an existing credit agreement that was amended during the first quarter.