Office Depot Inc. (ODP) recently posted better-than-expected second-quarter 2011 results. The quarterly adjusted loss per share of 6 cents not only improved from the prior-year quarter loss of 9 cents but also outshined the Zacks Consensus Estimate loss of 12 cents.
On a reported basis, including one-time items, Office Depot delivered a loss of 11 cents per share compared with 9 cents in the year-ago quarter.
Office Depot’s total revenue of $2710.1 million fell short of the Zacks Consensus Estimate of $2,728.0 million, but increased marginally from the prior-year quarter’s revenue of $2699.5 million.
Store and warehouse operating and selling expenses inched up 0.7%, while general and administrative expenses surged 7.7%. However, cost of goods sold and occupancy fell approximately 0.9%.
Segment Performance
During the quarter, revenue for the North American Retail division slid 2.0% to $1,080.1 million. Same-store sales inched down 1% versus the prior-year quarter. Office Depot hinted that customer transaction counts declined compared with the year-ago quarter but the average order value rose slightly during the reported quarter.
The division reported an adjusted operating profit of $15.0 million compared with $8.7 million in the prior-year quarter. Lower property costs and reduced marketing costs primarily led to a rise in the operating profit of the company.
Total store count at the North America Retail division stood at 1,131 at the end of the quarter. During the quarter, the company opened 4 stores, closed 14 stores and relocated 4 stores.
Revenue for North American Business Solutions also dipped 2.0% to $803.3 million, due to a decline in customer transaction counts and the average order value. Adjusted operating profit shoot up 2.5 times to $35.0 million, reflecting lower distribution, advertising and payroll expenses.
The International division’s revenue climbed 6.0% to $826.7 million (in U.S. dollar terms). The division posted an adjusted operating profit of $19.0 million, which remains flat with the prior-period figure, reflecting lower constant currency sales, fully offset by reduction in operating expenses.
Other Financial Details
Office Depot, the operator of office supply stores under brand names such as Office Depot, Foray, Ativa, Break Escapes, Worklife and Christopher Lowell, generated negative free cash flows of $85.2 million during the quarter compared with a negative free cash flow of $59.8 million in the prior-year period.
The company ended the quarter with cash and cash equivalents of $374.2 million, long-term debt of $652.7 million (reflecting debt-to-capitalization ratio of 48.2%), and shareholders’ equity of $700.5 million, excluding non-controlling interest of $0.3 million. Capital expenditures for the quarter came in at $60.4 million.
Currently, we maintain a long-term Underperform rating on the stock. Office Depot, which competes with Staples Inc. (SPLS) and OfficeMax Inc. (OMX), holds a Zacks #5 Rank, which translates into a short-term Strong Sell recommendation.
