BANGALORE (Reuters) - Office Depot Inc ODP.N reported a bigger-than-expected quarterly loss and warned of a “modest” loss in earnings before interest and tax in the second half of 2009 as the recession weighs on sales at the No. 2 U.S. office supplies retailer.
The lackluster results dragged its stock down as much as 20 percent, making it one of the top percentage losers on the New York Stock Exchange. The results also weighed on shares of rivals OfficeMax Inc OMX.N and industry leader Staples Inc SPLS.O.
Office-supply sellers have been struggling as consumers and small businesses become frugal in the economic downturn. Sales of big-ticket items such as furniture and computers have been particularly dismal.
Office Depot’s disappointing results came even as prices were somewhat stable and as it pushed vendors for additional support, Credit Suisse analyst Gary Balter wrote in a note to clients.
“Without these two factors one wonders just how weak results would have been,” Balter, who rates the shares “neutral,” said.
“Investors searching for a secondary player in the sector would do better with OfficeMax and those looking for leadership in the sector would be better with Staples as an investment,” he added.
The second-quarter net loss at Boca Raton, Florida-based Office Depot widened to $82 million, or 31 cents a share, from $2 million, or 1 cent a share, a year earlier.
Excluding charges, it reported a loss of 22 cents a share, while analysts, on average, had expected a loss of 12 cents, according to Reuters Estimates.
This year, the back-to-school season takes on even more importance for office supply retailers, as cutbacks in Corporate America have hurt sales to business customers.
Office Depot, which sees this back-to-school season being highly promotional, said it expects competition to be “very aggressive” in what should be one of its busiest selling periods.
Wal-Mart Stores Inc (WMT.N) has expanded its laptop selection by 40 percent and announced plans to be aggressive in pricing computers and the accessories that go with them.
Unlike the first quarter in which Office Depot posted a surprising profit on strict expense control, cost-cuts failed to offset the sales volume decline in the second quarter.
While sales fell 22 percent to $2.8 billion, operating expenses -- adjusted for charges -- fell $143 million in the latest second quarter.
Office Depot has laid off workers, closed stores and distribution centers and trimmed capital spending in a bid to slash costs in the slump.
Sales at U.S. and Canadian stores open at least a year, a key measurement of retailer health, fell 18 percent.
The company reduced promotions at its North American stores, which also hurt sales.
The London-based private equity firm BC Partners invested $350 million in Office Depot last month, relieving some concerns regarding the company’s ability to repay debt. Office Depot said it was continuing to pursue other internal sources of liquidity.
The company, which took pretax charges of about $35 million in the quarter, sees between $85 million and $115 million in additional charges for the rest of 2009.
Office Depot shares fell to a low of $4.33, down more than 19 percent in early afternoon trade on the New York Stock Exchange. OfficeMax’s stock was down 47 cents at $7.17, while shares of Staples were 50 cents lower at $20.91.
Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn, Jeffrey Benkoe, Leslie Gevirtz