The real reasons Office Depot’s Q3 comps increased

Office Depot achieved impressive third quarter same-store sales growth and asserted that its merger with Staples could close as early as this year.



Same-store sales at Office Depot’s North American Retail division increased by 3%, an impressive figure considering the overall weak results the retail division has produced in recent years. That weakness has prompted hundreds of store closures, which is one of the reasons for the improved productivity of the company’s remaining stores during the third quarter ended Sept. 26. The store portfolio was also up against a weak prior year comparison when comps declined 3%.



Other factors contributing to the improvement in same store sales during the recent third quarter were “increased operational effectiveness,” and a strong back-to-school season. The company said transaction counts increased but average order value was flat with increases seen in categories such as supplies, furniture, Copy & Print Depot, ink and toner. Computers and related technology product categories declined, according to the company.



Total sales for the retail division declined 7% to $1.6 billion from $1.7 billion as the number of store in operation at the end of the third quarter shrank to 1,620 units, compared to 1,851 units at the end of the third quarter the prior year. So far this year Office Depot has closed 125 stores and for the full year expects to close 180 units with plans to shutter another 50 stores next year.



"We delivered strong operating results in the third quarter, despite the continued disruption related to the pending acquisition by Staples," said Roland Smith, chairman and CEO of Office Depot. "Compared to the prior year period, third quarter adjusted operating income increased almost 30% driven by North American Retail same-store sales growth of 3%, and substantial synergies and efficiencies generated from the integration of Office Depot/OfficeMax and our European restructuring. Planned store closures and foreign currency translation continue to be the primary causes of lower total company sales versus last year."



The retail division’s operation income increased to $120 million from $79 million in the third quarter last year, and operating margin expanded to 7.5% from 4.6%. That performance helped the company’s overall results with operating income, excluding some acquisition related expenses, increasing to $163 million compared to $126 million.



Total company reported sales for third quarter 2015 were $3.7 billion, compared to $4.1 billion in third quarter 2014, a decrease of 9%. Net income of $6 million, or one cent a share, was down from the prior year net income of $29 million, five cents a share. However, on an adjusted basis to exclude store closure and merger related costs, Office Depot said net income was $87 million, or 16 cents a share, compared to $52 million, or 10 cents a share.