Office Depot posts loss, pares store growth
ATLANTA (Reuters) - Office Depot Inc (ODP.N) reported a second-quarter loss on Wednesday as a decline in spending by retail consumers and smaller businesses in the United States hurt sales, and it said it would cut store openings this year.
The office supply retailer said it had access to a new credit facility that would aid its liquidity and also said it was "open-minded" to an unsolicited bid of $430 million for its stake in a Mexico joint venture.
The company's shares were down 1.3 percent in afternoon trading.
"While earnings results, in absolute, were quite poor, they were generally in line with expectations, and the lifting of credit concerns and the bid for the Mexico (venture) are incremental positives," Sanford Bernstein analyst Colin McGranahan said in a research note.
Office Depot said it had obtained commitments for a new credit facility in excess of $1 billion that will be in place by the end of the third quarter.
The company had a loss of $2 million, or a penny a share, for the second quarter, compared with earnings of $105.6 million, or 38 cents a share, a year earlier.
Excluding items, earnings were 4 cents a share for the second quarter, 3 cents better than the analysts' average estimate of 1 cent a share, according to Reuters Estimates.
SECTOR WOES
Small business owners and retail consumers have cut back on spending in the weak U.S. economy, bringing pain to the North American office supply sector, which includes Office Depot, OfficeMax Inc (OMX.N) and industry leader Staples (SPLS.O).
OfficeMax reported a quarterly loss late on Tuesday after one-time charges. Though its results were better than expected excluding the charges, OfficeMax also noted lower retail and contract sales.
At Office Depot, total second-quarter sales fell 1 percent to $3.6 billion. North American retail sales fell 6 percent to $1.4 billion, while sales at U.S. and Canadian stores open for more than a year decreased 10 percent.
Sales in the business solutions division fell 5 percent to $1.1 billion. Office Depot said growth among large, national account customers was more than offset by a 10 percent sales decrease with small- and medium-size business customers. The company especially noted weakness in smaller business demand in Florida and California, which account for about 30 percent of the segment's sales.
International sales rose 13 percent to $1.1 billion.
To cut costs and reduce capital spending, Office Depot said it would scale back store openings and slow remodeling efforts. It plans to open 15 stores in the second half and a total of 66 for this year, down from a previous forecast of 75 stores for 2008. For 2009, it plans 45 new stores.
The company also said that it was reducing its North American staff, but didn't disclose numbers.
Mexico's Grupo Gigante (GIGANTE.MX) said it offered about $430 million to acquire Office Depot's stake in the two companies' joint venture in that country.
Though substantive talks on the proposal have not yet started, Office Depot said it was open to a deal.
"If we are able to proceed with some sort of transaction, this is a meaningful sum of money and it could create a shareholder value-creating event," Office Depot Chief Executive Steve Odland said during a conference call.
Office Depot shares were down 9 cents, or 1.3 percent, to $6.81 in afternoon New York Stock Exchange trading while OfficeMax shares shed $1.37, or 9.7 percent, to $12.74. Staples shares were off 12 cents to $22.69.
(Reporting by Karen Jacobs; Editing by Gary Hill)
