UPDATE 3-Office Depot to close stores, cut 2,200 jobs

Wed Dec 10, 2008 11:48am EST

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(Recasts, adds analyst comment, details; updates stock action)

CHICAGO Dec 10 (Reuters) - Office Depot Inc ODP.N said on Wednesday it plans to close 126 stores and lay off about 4.5 percent of its workforce and may exit businesses as the economic downturn cuts demand from small businesses and retail customers for office supplies.

Shares of Office Depot rose as much as 11 percent as investors cheered the moves.

"Given the challenging macroenvironment, we favor (Office Depot's) commitment to curb capital expenditures and efforts to improve operating profit," Standard & Poor's analyst Michael Souers said in a research note.

The Boca Raton, Florida-based company, which employs about 49,000, said it will reduce its workforce by about 2,200. Most of the reduction will be due to the store closures.

Office Depot plans to close 112 underperforming retail stores in North America over the next three months. In addition, 14 stores will be closed through 2009 as their leases expire or other lease arrangements are completed, it said.

The retailer will also close six of its 33 distribution facilities in North America and plans to open roughly 20 new stores in 2009, down from an earlier estimate of 40 stores.

Office Depot expects the actions to result in charges of $270 million to $300 million to be taken in the fourth quarter and in 2009. It also reduced its capital spending plans for 2009 to less than $200 million from about $225 million, which it had forecast in late October.

The company said it is looking at other moves it expects to result in additional charges in the fourth quarter and into 2009. Those actions may include restructuring or exiting businesses and assessing assets.

Office Depot's sales have suffered as small business owners and retail consumers have spent less on office supplies. The retailer said the trend, which has also hurt peers OfficeMax Inc OMX.N and industry leader Staples Inc (SPLS.O), worsened amid the global financial crisis.

In October, Office Depot said it would delay opening new stores after it posted a surprise third-quarter loss. In July, it said it would cut its store-opening plans and slow its remodeling efforts to cut costs and reduce capital spending. At that time, Office Depot also said it was reducing its North American staff and had offered a voluntary exit program for some employees.

In November, rival OfficeMax said it was cutting 245 corporate staff and field management positions in North America and predicted a significant sales decline in the fourth quarter. OfficeMax has also trimmed store management, halted new store construction and delayed its store remodel program until economic conditions improve.

In early December, Staples posted a quarterly profit that topped analysts' expectations by a penny per share and announced an improved cost-savings outlook. Staples also said it plans to open 75 stores in North America next year.

Shares of Office Depot rose as high as $2.70, and were still up 22 cents, or 9.1 percent, at $2.65 in midday trading on the New York Stock Exchange.

Shares of OfficeMax were up 11.6 percent at $6.84, while shares of Staples rose 6.3 percent to $18.01. (Reporting by Nicole Maestri in New York and Jessica Wohl and Ben Klayman in Chicago; Editing by Gerald E. McCormick, Dave Zimmerman)

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