Depot Q4 sales up


14 February 2007 — Delray Beach (FL): Office Depot has reported Q4 total company sales of $3.8 billion, up three percent compared to a year earlier.

North American Retail same-store sales were up 1 percent for the quarter, the twelfth consecutive quarter of positive growth.


Net earnings for the quarter were $135 million, or diluted EPS of $0.48, compared to $106 million, or diluted EPS of $0.34, in the previous year.


During the quarter, the company repurchased approximately 2.4 million shares of common stock for $100 million under repurchase programmes previously approved by the board of directors.


Q4 sales in the North American Retail Division were $1.7 billion, roughly even with the same period last year. The division reported Q4 operating profit of $122 million, up from $103 a year earlier.


Sales in the North American Business Solutions Division increased during the quarter by 1 percent, compared the previous year. The division’s operating profit was $72 million for the fourth quarter of 2006 compared to $108 million last year.


According to Depot: "From a channel perspective, fourth quarter 2006 revenue reflects like for like sales growth of 21 percent in the contract channel (including the recent Allied acquisition) which more than offset expected declines in the direct selling channel from the Division’s brand consolidation which deliberately reduced some unprofitable business."


Sales in Depot’s International Division increased by 13 percent in US dollars compared to Q4 2005. All channels contributed positive growth and the Division has realised its fourth straight quarter of sales growth in local currencies. Operating profit was $77 million, compared to $57 million last year.


During the quarter, Depot completed the sale and short-term leaseback of its existing corporate headquarters in anticipation of the late 2008 completion of its new headquarters. That sale resulted in a net pre-tax gain of $15.7 million (net of debt retirement charge).


The company also recorded a $16.5 million charge associated with the pending settlement of a legal matter.


Steve Odland, chairman and CEO, said: "We are pleased with the performance of our business in the fourth quarter. The strategic initiatives that we have implemented have led to sales growth in each of our divisions as well as lower operating expenses and expanded total company margins. This overall growth in sales and operating margin expansion was realized despite a highly promotional holiday retail environment and reduced technology sales due to the impending release of Microsoft Windows Vista at the end of January. This reflects the strength of our overall business model."


For the year, sales were $15 billion, an increase of 5 percent from the prior year. Comparable sales for the year in the North American Retail Division increased by 2 percent.


Net earnings for 2006 were $516 million compared to $274 million in 2005. Diluted EPS were $1.79 in 2006 versus $0.87 in the year before. Excluding certain items in both years (primarily charges and the effect of the 53rd week in 2005), net earnings as adjusted increased to $558 million in 2006 from $444 million in 2005.


For the year, operating profit as a percentage of sales was 4.9 percent compared to an operating profit of 2.4 percent a year earlier. Operating profit margin, as adjusted, increased 90 basis points to 5.3 percent from 4.4 percent. This improvement resulted from a 20 basis point expansion in gross profit margin and a 70 basis point reduction in our operating expense ratio which Depot says reflects "leverage on higher sales and cost efficiencies".