Thursday, July 31, 2008
Office Depot lost $2 million as second-quarter sales fell.
NEW YORK (AP) — Office-supply retailers felt no relief from the pinch of weaker spending by consumers and small businesses, with both Office Depot and OfficeMax citing the struggling economy as they reported losses for the second quarter.
Office Depot Inc. reported a $2 million loss for the second quarter Wednesday, hurt by lower-than-expected sales in its North American retail stores. That followed word a day earlier that rival OfficeMax Inc. also posted a loss as sales fell and it took a hefty charge.
Shares in OfficeMax dropped nearly 16 percent, while Office Depot lost 1.7 percent.
The results show that the office-supply chains are feeling the pressure as consumers and businesses alike tighten their purse strings amid rising food and gas prices, declining home values and an uncertain job market.
“We continue to be negatively impacted by weakening business conditions in North America,” Chuck Rubin, president of Office Depot’s North American retail division, said during a conference call Wednesday. “Specifically, weakness in Florida and California continued to weigh heavily on our results.”
Delray Beach, Fla.-based Office Depot said its loss amounted to a penny per share in the three months ended June 28. That’s a reversal from a profit of $105.6 million, or 38 cents per share, a year ago.
Excluding one-time items, it earned 4 cents per share. Analysts polled by Thomson Financial, who typically exclude one-time items, predicted a penny per share profit.
Revenue fell less than 1 percent to $3.61 billion, topping analyst expectations for $3.56 billion.
Sales in U.S. and Canadian stores open at least one year, a key retail measure known as same-store sales, fell 10 percent.
Goldman Sachs analyst Matthew Fassler, who rates Office Depot as “Neutral,” said in a note to investors that the retail result exceeded the bank’s profit forecast, “but was still very soft.”
“Sales did not deteriorate meaningfully in any business, but underlying profitability clearly trended lower than the firm expected at the end of the first quarter,” he said.
Rival OfficeMax had reported after the market closed Tuesday that it swung to a second-quarter loss of $894.2 million, mainly due to a massive accounting charge related to reassessing the value of goodwill and intangible assets.
The charge stems from an accounting procedure required when certain triggers are met, such as a sustained low stock price, reduced market capitalization and a weak economic environment. OfficeMax shares have fallen about 32 percent since the beginning of the year.
Excluding one-time charges, the Naperville, Ill.-based company would have earned $19.4 million, or 24 cents per share, while analysts expected a profit of 18 cents per share. Revenue fell 7 percent to $1.98 billion, below analysts’ expectations for $2.02 billion.
Same-store sales fell 10 percent during the quarter.
“As with our direct and broader retail peers, OfficeMax continues to be impacted by weaker consumer and small-business spending,” said Chief Operating Officer Sam Martin. “We’re operating in an environment with higher prices for fuel, food and other products along with declining home values and a choppy job market which are all impacting consumers’ purchase decisions.”
Fassler said OfficeMax, which he also rates as “Neutral,” is managing profitability “exceptionally well” in a tough backdrop.