More Losses For Office Depot Office Depot (NYSE:ODP) reported a second-quarter net loss of 1 cent per diluted share on revenue of $3.6 billion. The company earned 4 cents per share after excluding special items. Although both numbers beat the analyst expectations of 1 cent per share earnings and $3.56 billion in revenue, Office Depot provided some ominous clues on the direction of the economic downturn, and prepared for further deterioration. Office Depot's North American retail division was the main culprit in the loss for the quarter, with an operating loss of $4 million and sales down 6% to $1.4 billion. Comparable store sales, which Office Depot defines as stores open for more than a year, were down 10%. Both the North American Business Solutions and International Division reported operating profits for the quarter. The drop in comparable store sales was in line with the lowered guidance that Office Depot issued three weeks ago. The cut in guidance on July 8 caused a disturbance in the stock, which closed down 33% by the end of trading that day. Management indicated that weakness in its business, which originally had been restricted to its markets in California and Florida, was spreading all over the country. "Persistent weakness in Florida and California continued to weigh heavily on results; however, the sales decline in these two states is consistent with what has been reported over the past few quarters," management said in a press release. "Outside of those two states, a further decline in demand has occurred as this economic slowdown has spread to most regions of the country." Circling the Wagons Office Depot is also preparing for a further weakening in demand. The company announced that it was slowing the opening of new stores and store remodels for the full year. Office Depot has opened 51 new stores and completed three remodels in the first two quarters of 2008, and it plans to only open 15 new stores in the second half of the year. It also cut its store remodels from an originally planned 100 down to only 11. The company operates a total of 1,272 stores in the U.S. and Canada. The company said in its 10-Q filing that it was in compliance with all of the restrictions in its revolving credit facility, and that based on current projected operating results, it would stay in compliance with those restrictions during the third quarter. Management added that if business fell short of those projections, then it would be in violation of the agreement, and that given the "uncertain economic environment" Office Depot is seeking a new credit facility to replace the existing one. Are We Near the Bottom? So, how bad can things get for Office Depot? The company has now reported six straight quarters of declining comparable store sales (comps). This predates the current economic situation we are in, indicating that perhaps something else is going on at the company. During the last recession in 2001, which was fairly mild relative to others historically, comps declined for 15 straight quarters. Once again, this streak started before and continued after the recession .
$7.03 (08/09/08)
