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Office Depot to close 400 U.S. stores, shares jump

An Office Depot store is pictured in Encinitas, California, February 19, 2013. REUTERS/Mike Blake
An Office Depot store is pictured in Encinitas, California, February 19, 2013. REUTERS/Mike Blake

By Maria Ajit Thomas

(Reuters) - Office Depot Inc said it would close at least 400 stores in the United States over two years as it looks to consolidate operations after acquiring OfficeMax, and the company raised its forecast for full-year adjusted operating income.

Shares of Office Depot, which also reported better-than-expected quarterly results, rose as much as 20 percent in early trading. The stock was among the highest percentage gainers on the New York Stock Exchange on Tuesday.

"This stock looks to be a beat and raise story throughout 2014," Janney Capital Markets analyst David Strasser wrote in a note, implying Office Depot was being cautious in its forecast.

The closure of the 400 stores will start adding to profit in 2015 and is expected to lead to annual run-rate savings of at least $75 million by the end of 2016, Office Depot Chief Executive Roland Smith said.

Office Depot and rival Staples Inc have been struggling with declining sales in the United States as shoppers shift their office supply purchases to e-retailers, mass merchants and drugstores.

Staples said in March that it would close 225 stores in the United States and Canada, about 12 percent of its North America outlets, and the company forecast another quarter of sales declines.

Office Depot said on Tuesday that it would shut 150 stores this year. The company said last month that it would close 19 OfficeMax stores in Canada.

At the end of 2009, Office Depot and OfficeMax combined had about 2,085 stores in North America, which will drop to about 1,500 stores in the United States by 2016 after the closures.

Office Depot's North America retail same-store sales fell 3 percent in the first quarter ended March 29.

However, the business seems to have improved from the fourth quarter, despite extremely cold weather in the first quarter, B. Riley & Co analyst Scott Tilghman said.

"Same-store sales were down 4 percent last quarter so (this is) definitely a move in the right direction ... despite all of the headwinds," he said.

Office Depot Chief Financial Officer Stephen Hare said the North America business benefited from higher sales of copy and print services, but was hurt by a decline in sales of supplies, furniture and technology-related products.

Tilghman also said that Office Depot might become more aggressive in adding products and services to arrest the fall in sales.

Staples said in March that it would refresh about 20 percent of the products in its stores, adding new items such as storage solutions and maintenance repair and operations items.

Office Depot raised its full-year adjusted operating income forecast to at least $160 million from $140 million.

The company posted a first-quarter net loss of $109 million, or 21 cents per share, attributable to common stockholders. A year earlier, Office Depot had a net loss of $17 million, or 6 cents per share.

The company earned 7 cents per share, excluding items.

Including OfficeMax operations, sales were $4.35 billion. Office Depot alone had sales of $2.72 billion a year earlier.

Analysts on average had expected a profit of 3 cents per share on sales of $4.28 billion, according to Thomson Reuters

I/B/E/S.

Office Depot's shares were up 15.8 percent at $4.83 in late morning trading.

(Editing by Savio D'Souza and Kirti Pandey)

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