Results improve at ODP, search on for CEO

Two days after announcing the resignation of chairman and CEO Steve Odland, Office Depot on Wednesday announced improved results for the third quarter ended Sept. 25 despite a challenging economic climate which pressured sales. The company said it achieved third-quarter profits of $54 million, reversing a prior-year loss of $413 million, while earnings per share rebounded to 18 cents compared with a prior-year loss of $1.51. Total sales declined 4.3% to roughly $2.9 billion, including the unfavorable effect of foreign exchange rates.



The huge swing in profits was not as extreme as it might seem due to the inclusion of tax and interest expense benefits during the current third quarter, which caused a 15-cent-per-share favorable impact compared with a prior-year period when reported profits were negatively impacted by $1.43 due to charges for deferred tax asset valuation allowances, the reversal of tax benefits and restructuring activities.



Board member Neil Austrian, who became interim CEO on Monday when the departure of Odland was announced, said the company was executing very well across the entire enterprise and is well positioned for a rebound. He also singled out the company’s North American Retail Division for its best sales performance since the fourth quarter of 2006. The 1,150 retail division reported same-store sales that were flat with the prior year and operating profits that declined to $30 million compared with $35 million. Profits were pressured as the company engaged in a highly promotional and competitive back-to-school season, which prompted increased advertising expenditures.



In addition to improved profitability, the company highlighted its free cash flow of $109 million and cash on hand of $679 million at the end of the quarter.



“We are pleased with our strong cash flow performance in the third quarter, which was driven by both earnings and good working capital management," said Mike Newman, Office Depot's CFO. "We have been executing very well across the entire enterprise as we focus on returning to sales growth and delivering improved profit as we go forward."



Austrian indicated the company’s liquidity and positioning in the marketplace will enable the company to attract a quality executive to replace Odland although he declined to offer a timetable during a conference call with analysts.



“I don’t think we want to set a timetable because we want to find the best person we can.”



Austrian also said the timing of Odland’s departure was unrelated to a settlement with the Securities and Exchange Commission relating to inappropriate communications with investors.



“It has nothing to do with the SEC issue. It is unfortunate that it has come out that way, but it is not the facts,” Austrian said.



The change in leadership is intended to provide a spark to a company positioned to capitalize on improved economic conditions.



“We want a hall of fame guy. We want someone who is a proven leader and has run a major business and can grow revenue,” Austrian said regarding the search for Odland’s successor. “We are not going to cost cut our way of the problem.”