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Office Depot Posts Wider Q2 Loss On Lower Regional Sales - Update

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Tuesday, office supplies retailer Office Depot Inc. (ODP) reported a wider net loss in its second quarter, hurt by higher charges as well as double-digit sales fall in all regions. On an adjusted basis, the Boca Raton, Florida- based company slipped to a wider-than-expected loss, and top line, with a 22% decline, missed Street view. North American Retail Division's comparable store sales in the quarter decreased 18%.

Second-quarter net loss was $82.864 million, compared to last year's net loss of $2.629 million. Net loss attributable to Office Depot was $82.072 million, compared to a net loss of $2.002 million last year, while net loss available to common shareholders, adjusted for Preferred stock dividends, was $82.558 million, in comparison to last year's loss of $2.002 million. On a per share basis, loss was $0.31 for the quarter, wider than prior year's loss of $0.01.

The latest quarter results included about $22.3 million or $0.09 per share of charges related to the strategic business review actions taken in the second quarter of 2009, including lease accruals, severance expenses and asset impairments associated with sale-leaseback transactions. Meanwhile, last year's charges were $11.8 million or $0.05 per share.

Excluding charges, adjusted net loss attributable to Office Depot was $59.8 million or $0.22 per share, compared to an earnings of $9.8 million or $0.04 per share a year ago.

On average, 16 analysts polled by Thomson Reuters expected the company to report a loss of $0.12 per share for the quarter. Analysts' estimates typically exclude special items.

Total sales for the quarter declined 22% to $2.82 billion from $3.61 billion a year earlier, missing eight Wall Street analysts' consensus estimate of $2.88 billion.

Commenting on the results, Mike Newman, Office Depot's chief financial officer, stated, "Second quarter business results met our expectations given the challenging economic conditions and the period's normal seasonality. However, the successful execution of our liquidity initiatives generated positive cash flow before financing activities in the second quarter, significantly exceeding our expectations."

In the quarter, sales in the North American Retail Division fell 21% year-over-year to $1.13 billion, partly due to 114 fewer store openings than last year. Comparable store sales in the 1,138 stores in the U.S. and Canada that have been open for more than one year decreased 18%. According to the company, the drop in comparable store sales were due to "macroeconomic factors as consumers and small business customers continued to reign in their spending, especially on large ticket items like furniture and computers, and the Division's commitment to proactively reduce promotions in certain low margin categories."

During the second quarter, Office Depot closed five stores, opened three and relocated one store, bringing the total store count for North America to 1,158 as of June 27, 2009.

Sales in the North American Business Solutions Division were $868 million in the quarter, down 18% from last year, driven by continued significant spending cuts across the Division's customer base. Sales from International Division fell 25% from last year to $830 million, while the fall was 12% in local currency.

The company's second quarter gross profit fell to $764.05 million from $983.52 million a year ago, and gross margin edged down to 27.1% from 27.3% in the previous year. Operating loss was $97.93 million, wider than last year's loss of $1.53 million. Adjusted operating loss was $62.9 million or negative 2.2% of total sales, compared to last year's earnings of $14 million or 0.4% of total sales.

For the preceding first quarter, Office Depot posted a net loss attributable to Office Depot of $54.7 million or $0.20 per share, compared with prior year's profit, while adjusted for charges, earnings were $27 million or $0.10 per share, lower than last year. Quarterly sales declined 19% to $3.23 billion, hurt by plunge in demand for office supplies.

Among other officer suppliers, the Naperville, Illinois-based OfficeMax Inc. (OMX) is slated to release its second-quarter numbers before the markets opens on July 30. Wall Street analysts expect the company to post a loss of $0.07 per share, on revenues of $1.64 billion. This compares with prior year's earnings and revenues of $0.24 per share and $1.98 billion, respectively.

Office products supplier Staples Inc. (SPLS) is expected to report its second-quarter results on August 25. Analysts are expecting the company to earn $0.16 per share on revenues of $5.52 billion for the quarter.

For the first six months of fiscal 2009, Office Depot's net loss was $138.196 million, compared to earnings of $66.004 million. Net loss attributable to Office Depot was $136.811 million and loss available to common shareholders was $137.297 million, in comparison to prior year's earnings of $66.771 million. First-half loss per share was $0.51, compared to earnings of $0.24 last year.

Adjusted net loss attributable to Office Depot was $32.5 million or $0.12 per share, compared to last year's earnings of $87.9 million or $0.32 per share. First-half sales fell to $6.05 billion from prior year's sales of $7.57 billion.

Looking ahead, Office Depot said that during the balance of 2009, it expects to recognize between approximately $85 million and $115 million in additional charges as activities are completed and accounting recognition criteria are met. The company said it expects these activities and charges to be completed by the end of 2009 and should benefit full year EBIT and cash flow by approximately $130 million and $85 million, respectively.

ODP closed Monday's regular trading session at $5.35, up $0.36, on a volume of 19.8 million shares, against a 3-month average volume of 9.8 million shares. In the past 52 weeks, shares have been trading in a broad range of $0.59 - $8.50.

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