Office Depot Announces Second Quarter 2010 Results
BOCA RATON, Fla., -- Office Depot, Inc., a leading global provider of office products and services, announced results for the fiscal quarter ending June 26, 2010.
Second Quarter Results
Total Company sales in the second quarter of 2010 were $2.7 billion, a 4 percent decrease compared to the second quarter of 2009.The Company reported a loss, after preferred stock dividends, of $19 million in the second quarter of 2010, compared to a loss of $82 million in the second quarter of 2009. The loss per share was $0.07 for the quarter, versus a loss per share of $0.31 in the same period one year ago.
Second quarter 2010 results included significant tax benefits and second quarter 2009 results include Charges related to restructuring activities which negatively impacted earnings by $0.09 per share.Total Company operating expenses decreased by approximately 8 percent from the second quarter of 2009. This decrease primarily reflects the Charges taken in the second quarter of 2009 and lower distribution costs in the second quarter of 2010. EBIT was a loss of $23 million in the second quarter of 2010, versus an EBIT loss, adjusted for Charges, of $62 million in the prior year period.In the second quarter of 2010, the Company's free cash flow was a use of $62 million and closed the period with $578 million in cash on hand."Our second quarter operating results exceeded our expectations due to strong execution in North American Retail, North American Direct and the International Division," said Mike Newman, Office Depot's chief financial officer. "We're pleased that these results include year-over-year gross profit margin improvement, marking the fourth consecutive quarter of such improvement."
Second Quarter Division Results
North American Retail Division
Second quarter 2010 sales in the North American Retail Division were $1.1 billion, a decrease of 2 percent compared to the same period last year. Comparable store sales in the 1,132 stores in the U.S. and Canada that have been open for more than one year decreased 1% for the second quarter compared to the prior year period. Although the average order value increased in the second quarter of 2010, customer transaction counts were down compared with the second quarter of 2009.The North American Retail Division reported operating profit of $9 million in the second quarter of 2010, compared to a loss of $13 million reported in the same period of the prior year. The operating profit improvement was driven by favorable product margins and the absence of a $5 million charge recognized in the second quarter of 2009 to reflect updated assumptions on subleases of closed stores.During the second quarter of 2010, Office Depot closed four stores and opened seven, bringing the total store count for North America to 1,152 as of June 26, 2010.
North American Business Solutions Division
Second quarter 2010 sales in the North American Business Solutions Division were $820 million, a decrease of 6 percent compared to the same period last year. The average order value was relatively flat compared to the second quarter of 2009. The number of customer transactions continued to be down versus the prior year period, although the rate of decline has actually improved sequentially over the past five quarters. Sales in the Direct channel were relatively flat versus the same period one year ago with many product categories showing positive growth. Sales in the Contract channel declined in the second quarter versus one year ago but the rate of decline improved from prior quarters.The North American Business Solutions Division reported operating profit of $14 million in the second quarter of 2010, compared to $23 million for the same period of the prior year. The drivers of the second quarter operating profit change versus one year ago include the flow-through impact of lower sales, as well as shrink and customer rebate benefits last year.
International Division
Second quarter 2010 sales in the International Division were $778 million, a decrease of 6 percent in U.S. dollars and a decrease of 3 percent in local currency compared with the same period last year. Contract channel sales increased slightly compared with the second quarter of 2009. Although Direct channel sales declined versus the prior year, the rate of decline has improved compared to prior quarters. The Retail channel achieved positive sales growth versus the same period one year ago, after considering the Japan retail closures last year.The International Division reported an operating profit of $19 million in the second quarter of 2010, compared to $3 million in the same period of the prior year. Operating profit improvement in the second quarter of 2010 was driven by a number of factors including better pricing management, reduced distribution costs and general and administrative expenses, and exiting the retail business in Japan during 2009. These positive factors more than offset the negative flow-through impact of lower sales. The change in exchange rates had a modest negative impact on operating profit in the second quarter of 2010.
Other Matters
Since 1996, Office Depot has been selling products through a third-party, non-profit government purchasing cooperative available to local and state government agencies, schools and non-profit organizations nationwide. The lead government agency contract for office supplies, which has been in place since 2006 and for which the Company is the provider, expires on January 1, 2011 and the agency has solicited proposals for a new office supplies contract. In July 2010, Office Depot chose not to submit a proposal. The Company believes that the contract contains terms that are problematic and performing under it could negatively impact Office Depot's profitability. The Company will aggressively work to retain its customers related to this particular business and grow the business directly and through new cooperative agreements. Additionally, Office Depot can manage costs as needed to mitigate the potential financial impact of current business not retained.Additional information on the Company's second quarter results can be found in our Form 10-Q filed with the Securities and Exchange Commission on July 27, 2010.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS: The Private Securities Litigation Reform Act of 1995, as amended (the "Act") provides protection from liability in private lawsuits for "forward-looking" statements made by public companies under certain circumstances, provided that the public company discloses with specificity the risk factors that may impact its future results. We want to take advantage of the "safe harbor" provisions of the Act. Certain statements made in this press release are forward-looking statements under the Act.Except for historical financial and business performance information, statements made in this press release should be considered forward-looking as referred to in the Act.Much of the information that looks towards future performance of our company is based on various factors and important assumptions about future events that may or may not actually come true. As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in the forward-looking statements made in this press release. Certain risks and uncertainties are detailed from time to time in our filings with the United States Securities and Exchange Commission ("SEC").You are strongly urged to review all such filings for a more detailed discussion ofsuch risks and uncertainties. The Company's SEC filings are readily obtainable at no charge at www.sec.gov.