Bloomberg reports that Office Depot (ODP), the second-largest U.S. office-supply chain, could merge with OfficeMax Incorporated (OMX). Intense competition among the office supply retailers coupled with a high unemployment rate may result in industry consolidation.
As per the data provided by Bloomberg, Office Depot’s market value has dropped 90% to $1.16 billion in the last five years, while OfficeMax has a value of $664 million after tumbling 78%.
Office Depot supplies a range of office products and services across the globe. The company has operations throughout North America, Europe, Asia, and Central America.
The company, which has been persistently losing market share to industry stalwarts, recently posted lower-than-expected first-quarter 2011 results.
The underperformance can be traced back to sluggish sales across each business segment that suffered due to lower customer transaction counts and the divestiture of businesses in Japan and Israel.
The decline in business and consumer spending in the wake of the global meltdown and the deterioration of credit markets have resulted in sluggish demand for big-ticket items such as business machines and other durable products.
Office Depot also faces stiff competition from office supply retailers, such as Staples Inc. (SPLS), and wholesale clubs, discount stores, mass merchandisers, computer and electronics superstores on attributes such as store format, pricing strategy and in-stock consistency. All these continue to exacerbate the company’s performance.
Consequently, we maintain a long-term Underperform rating on the stock. However, Office Depot holds a Zacks #3 Rank, which translates into a short-term Hold rating.
OFFICE DEPOT (ODP): Free Stock Analysis Report
OFFICEMAX INC (OMX): Free Stock Analysis Report
STAPLES INC (SPLS): Free Stock Analysis Report
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