The slide continues



Share prices in Office Depot and OfficeMax plunged to new all-time lows on Wall Street on Thursday following the cutting of earnings estimates by a Citigroup analyst.


Depot’s share price fell by 19 percent to $1.88, while Max’s shares dropped by 22 percent to $3.40 after Citigroup analyst Kate McShane cut her estimates for the three main office supply chains in the US.


Once again, Staples was the only one of the three to show any resistance, its share price inching up by 1 percent on the day to $15.41, as McShane maintained her ‘Buy’ recommendation for the Framingham-based supplier, although she cut the company’s 2009 EPS estimates and share price target.


"Staples appears best positioned over the long term based on the company’s scale, continued prospects for growth in retail, delivery and international, its potential for margin improvement through new services and exclusive product, and an experienced and well-regarded management team" said McShane in a research note.


"We also think the Corporate Express acquisition has the potential to be more accretive than guided," she added.


However, McShane also said that she remained "highly cautious" on office product shares for the rest of 2008 and into the first half of 2009 due to general macro weakness in consumer and small business spending.


She slashed her share price targets on Office Depot (to $3.50 from $8.00) and OfficeMax (to $6.00 from $14.00), saying that she saw only "limited catalysts in both the short and near term as the companies try to turn their businesses around in a difficult environment".


McShane maintained her ‘Hold’ rating on both Depot and ‘Max, but said that she was increasing the risk rating on Depot to ‘Speculative’ from ‘High Risk’ as a result of its "deteriorating business trends, its market capitalisation ($725m) and its financial strength".


In just a few days since McShane’s note, Depot’s market capitalisation has fallen to $517 million, while OfficeMax’s is just $258 million.


Both Office Depot and OfficeMax are due to announce their third quarter results in the next few days, and McShane is not expecting miracles.


For Depot, the Citigroup analyst is predicting a 70 percent drop in year-on-year EPS to $0.09, a same-store sales decline of 9 percent and a 3.5 percent decline in overall sales.


Meanwhile, McShane believes that ‘Max will see third quarter EPS fall by 44 percent to $0.36, same-store sales down by 9 percent (the same as Depot) and total sales 7.5 percent lower.


Staples does not release its third quarter results until mid-November, but McShane is also predicting a same-store sales decline of 9 percent, while she sees Staples core sales (i.e. excluding the impact of Corporate Express) dropping by 2.9 percent and EPS down by just 2 percent at $0.41.


While Staples continues to outperform its peers, there is little doubt that faith will be kept in the existing management team which has led the company to its dominant position.


The same cannot be said of Depot and ‘Max – it will be interesting to see if the companies’ boards finally run out of patience and decide that it is time for a change.


On the vendor side, we saw ACCO oust CEO David Campbell this week, and it would not be a major surprise if there were similar moves at Depot and ‘Max.




Stop Press:


As we post this article on, stock markets have again tumbled on Friday, with Tokyo’s Nikkei down almost 10 percent and the main European indices falling heavily.


In early trading in the US, the major office suppliers were once again down more than the market average, dropping between 4.5 and 6 percent.