Office Depot traded profits for sales in Q4

BOCA RATON, Fla. — Office Depot swung to profitability during the fourth quarter, despite a 5% comp sales decline at North American retail stores where the retailer shunned promotional activity during the holidays.

Sales at the company’s 1,131-unit retail division totaled $1.2 billion during the fourth quarter and were essentially flat with the prior year. Operating profits nearly doubled to $32 million from $16 million in the quarter. Both figures benefited from the inclusion of an extra week in the company’s 2011 fiscal year which added $78 million in sales.

Office Depot said the significant increase in operating profit reflected approximately 300basis points of gross margin improvement, including improved product margins from a higher sales mix of supplies, better promotional management and lower property costs. It was also noted the 53-week fiscal year benefitted comparisons and reduced advertising helped profitability.

Sales of office essentials, writing instruments, and cleaning and break room products in the fourth quarter of 2011 were all positive versus the prior year. The technology category experienced strong sales in tablets, but a higher than expected decline in sales of computers and related products and if those categories were excluded same store sales would have been positive.

The company’s services business remained healthy with the Copy and Print Depot posting a high single-digit comps increase, its eighth consecutive quarter of positive numbers. However, furniture category sales were down slightly in the quarter as the reduced level of promotions took a toll on sales as well as overall number of customer transactions which declined 4%.

Office Depot’s total sales from continuing operations on a constant currency basis declined 4% to $2.8 billion from which the company was able to eke out a profit of $12 million or four cents a share. Excluding one time charges and gains, fourth quarter profits were $8 million or three cents a share. That may not be much either way, but it is still way better than the loss of $109 million, or 39 cents a share, the company reported the prior year.

Office Depot chairman and CEO Neil Austrian said the company was gaining traction and noted that, “our results are a testament to our improving execution across the enterprise and our focus on fewer initiatives.”

The company’s North American Business Solutions division saw sales increase 4% to $832 million, but excluding a $34 million benefit from the fiscal year’s extra week sales would have been flat. The extra week has a neutral effect on operating profits which increased to $45 million from $37 million.

Office Depot’s international division saw sales decline 3% on a constant currency basis to $901 million while operating profits increased to $33 million from $21 million.

Office Depot ended the year with total sales of $11.5 billion, a 1% decrease from the prior year, but managed to generate full year net income of $60 million or 22 cents a share, compared to a prior year loss of $82 million or 30 cents a share.

In addition to improved profitability, the company ended the year with $734 millionof availability under its credit agreement and $571 million in cash on its balance sheet.