UPDATE 3-Office Depot posts narrower loss; shares up

Tue Feb 23, 2010 11:23am EST

* Q4 adjusted shr loss $0.06 vs Street view shr loss $0.22

* Sales fell 6.3 pct to $3.07 bln, ahead of Street view

* Sees Q1 EPS down vs yr ago but slightly positive

* Shares up 5 percent (Adds company, analyst comments, byline; updates stock move)

By Jessica Wohl

CHICAGO, Feb 23 (Reuters) - Office Depot Inc ODP.N posted a narrower-than-expected loss and said that sales trends continued to improve in the current quarter, sending shares up 5 percent on hopes of a turnaround for its business.

The No. 2 U.S. office supplies retailer expects to post a profit this quarter, but a smaller one than a year ago, Chief Financial Officer Mike Newman said. Analysts are looking for a profit of 7 cents per share, down from an adjusted profit of 10 cents per share.

The better-than-expected fourth-quarter results "mark the first significant signal of progress in the company's prolonged turnaround effort," Oppenheimer & Co analyst Brian Nagel said in a research note. He said Office Depot looks to be benefiting from its own initiatives "and easing macro pressures."

But Office Depot said consumers and small business owners are still holding back on spending, particularly on bigger-ticket items such as furniture.

"We are seeing signs of economic stabilization, but we still remain cautious about the coming year," Chief Executive Steve Odland said during a conference call. "I am confident that our customers will buy more as they can afford to."

Adjusted for restructuring charges, the company posted a loss of 6 cents per share in the fourth quarter ended on Dec. 26. Sales fell 6.3 percent to $3.07 billion.

Analysts had expected a loss of 22 cents per share on $2.97 billion in revenue, according to Thomson Reuters I/B/E/S.

The news came a week after smaller rival OfficeMax Inc OMX.N reported better-than-expected quarterly results and said 2010 sales and operating margins should rise slightly above 2009 levels. [ID:nN17110892]

Shares of Office Depot jumped 5 percent to $6.98 in morning trade. The shares had risen 3.1 percent from the beginning of the year through Monday, underperforming shares of larger rival Staples Inc (SPLS.O), which have climbed 3.9 percent, and OfficeMax, which have jumped 23.6 percent.

CALIFORNIA WOES

On a net basis, Office Depot lost $61.5 million, or 28 cents per share, narrower than a loss of $1.54 billion, or $5.64, a year earlier.

While sales of office supplies, technology and furniture fell in North American stores, each category continued to improve sequentially, North American Retail President Chuck Rubin said.

Sales at stores open at least a year in the United States and Canada fell 4 percent. Comparable sales of items like ink and toner, cleaning supplies and software improved, Rubin said.

First-quarter North American same-store sales are down about 3 percent so far and total revenue is expected to decline at a steeper rate, the company said.

Office Depot has closed underperforming stores, which helped improve operating profit in the North American retail division. In total, store and warehouse operating and selling expenses fell 11.5 percent in the quarter and 12.5 percent for the year.

Rubin said the company sees potential in a smaller, 15,000-square-foot format open in a dozen U.S. locations. The stores have a smaller selection of goods such as furniture, as well as improved signs and lower shelves.

The retailer said it continues to feel pressure in California, where it has 149 stores, more than in any other state. Business is improving in its home state of Florida, another large market where sales took a hit as the recession set in, though comparable sales are still negative there.

Office Depot said it may seek an amendment to a facility that would allow it to pay preferred stock dividends in cash later this year. A Jan. 1 2010 dividend was paid in-kind by increasing the liquidation preference on the amount of the preferred stock. (Reporting by Jessica Wohl in Chicago and Dhanya Skariachan in New York; Editing by Derek Caney, Dave Zimmerman)

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