Office Depot Sinks on Q4 Earnings (or Lack Thereof)

Andrew Klips  |

Shares of Office Depot, Inc. (ODP) are making up a little bit of lost ground in early afternoon trading after sinking nearly 15 percent at the opening bell Tuesday. Integrations challenges related to merging with rival OfficeMax Inc. and stiff online sales competition were partially to blame for widening losses in the fourth quarter and results that came up short of expectations.

For the quarter ended December 28, 2013, Boca Raton, Florida-based Office Depot reported total sales of $3.5 billion, a 33-percent increase from the year-prior quarter. This total included $939 million in sales by OfficeMax, which were tallied from the date of the closing of the $1.2-billion acquisition on November 5 through the end of the quarter. Not counting the OfficeMax contribution, total sales at Office Depot were down by 2.9 percent.

Net loss for the fourth quarter was $144 million, or 34 cents per share, versus a net loss of $17 million, or 6 cents per share, in the year prior quarter. Adjusted earnings, which exclude acquisition costs and other one-time items, trimmed the net loss to 3 cents per share, compared to a flat Q4 in 2012.

Wall Street was expecting adjusted earnings to show a profit of 3 cents per share on revenue of $4.03 billion.

Costs associated with the merger, restructuring and other operating expenses swelled to $111 million in the latest quarter from only $12 million in the same quarter a year earlier. Selling, general, and administrative costs also increased, climbing to $782 million from $581 million.

On the flip side, gross profit increased to $787 million from $607 million, although gross margin slipped to 22.6 percent from 23.1 percent.

For all of 2013, revenue rose by 5 percent to $11.2 billion. Net loss for the full year was $93 million, or 29 cents per share, compared to a net loss of $110 million, or 39 cents per share for 2012. On an adjusted basis, the net loss was $36 million, or 11 cents per share, compared to net income of $9 million, or 3 cents per share, a year earlier.

The weaker performance was a cause to bring in turnaround expert Roland Smith as chief executive officer and chairman of Office Depot in November. 

“With our leadership team now in place, we have moved quickly to establish a lean organizational structure with the best talent from across the legacy businesses as well as adding new external leadership. We expect to complete a comprehensive reorganization of the company by the end of February 2014,” Smith said in a statement today.

The added synergies from the integration of OfficeMax are expected to create a cost savings of more than $600 million by the end of 2016 and that the company is committed to delivering no less than $140 million in adjusted operating income this year.

The unexpected loss sent shares down from Monday’s closing price of $5.35 to a low of $4.58 in Tuesday trading. Shares have pared some of those losses, eking up to $4.72 for a drop of 11.8 percent early in the afternoon, which is now essentially what the stock is down so far in 2014.

Stock price data is provided by IEX Cloud on a 15-minute delayed basis. Chart price data is provided by TradingView on a 15-minute delayed basis.

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