Office Depot moves to 1Q loss, but beats estimate

CHICAGO — Office Depot Inc. surprised Wall Street on Tuesday when it reported that, excluding its cost-cutting efforts and other one-time events, its first-quarter profit was much better than expected.

The news sent its shares up more than 20 percent before they fell off a bit. They rose 29 cents, or 11.5 percent, to close at $2.82 Tuesday.

The office supplies chain recorded a net loss of $54.7 million, or 20 cents per share, because of one-time charges related to its decision to shut 107 underperforming stores. Excluding the impact of one-time items, the Boca Raton, Fla.-based company earned $27 million, or 10 cents per share, for the three months that ended March 28.

Analysts surveyed by Thomson Reuters, who typically exclude such one-time items, were expecting Office Depot to lose 10 cents per share on sales of $3.26 billion.

During the same period last year, Office Depot earned $68.8 million, or 25 cents per share. Revenue slid 18 percent to $3.23 billion, from $3.96 billion.

“These are very strong results given the economic environment we are all experiencing,” Chief Executive Steve Odland told investors during a conference call.

Office Depot has seen its sales and stock price slide as corporate customers, many of them small businesses, cut spending because of the recession. While that continued to hamper sales, the retailer said the 16 percent decline in its North American retail unit’s first-quarter sales was also the result of less aggressive ad promotions for some categories.

Standard & Poor’s analyst Michael Souers said he was maintaining his hold rating on the company’s stock Tuesday but was worried that a same-store-sales decline of 17 percent was much worse than expected.

“We continue to expect deteriorating year-over-year trends in consumer and small business spending in 2009,” he told investors in a research note.

The North American Business Solutions division’s sales fell 17 percent to $914 million, while the international division’s revenue slumped 24 percent to $875 million on the stronger dollar, higher costs and increased promotions.

The $120 million in charges Office Depot recorded for the quarter, which amounted to 30 cents per share, included costs for lease accruals, severance and inventory write-downs related to store closings.

Office Depot warned it likely will record additional charges of approximately $110 million over the course of the year for related items.

The company previously announced it would close approximately 9 percent of its North American stores and cut 2,200 jobs. It also plans to open fewer locations next year.

Office Depot, which has about 42,000 workers, shut 107 stores and relocated one store during the quarter. It operated 1,160 stores at the end of the quarter.

AP Retail Writer Michelle Chapman in New York contributed to this report.

On the Net:

www.officedepot.com