Depot’s Q2 income falls


26 July 2007 — Delray Beach (FL): Office Depot has announced its Q2 results for the period ended 30 June.

Net earnings for the quarter on a GAAP basis were $109 million, compared to $118 million in 2006. GAAP diluted EPS were $0.40, compared to $0.41 last year. Total company Q2 sales grew by 4 percent to $3.6 billion, compared to the previous year. Sales growth in North America was flat during the period, down from 3 percent in Q1, and said to reflect "a continuation of the macroeconomic conditions" in the US.


North American retail sales rose by 1 percent to $1.5 billion, while same store sales fell by 5 percent. The company said it experienced softer sales in furniture and supplies, and, to a lesser extent, technology during the quarter as "customers adjusted their spending in reaction to macroeconomic conditions such as changes in the housing market and higher fuel costs". But the company cited data from retail research firm The NPD Group that indicated that Depot’s retail revenue share "increased sequentially" among office supply stores during Q2. The division’s operating profit was up 7 percent to $104 million, compared to $96 million last year.


The international division reported increased revenues of $124 million, or an increase of 14 percent compared to the prior year. Sales in local currency increased by 7 percent from 2006, marking the sixth consecutive quarter of sales growth in local currencies. 
Operating profit was $42 million, down from $48 million a year earlier. During the quarter, the division made a number of investments that resulted in short-term operating margin compression of approximately 100 basis points but is said to position the division to deliver longer-term operating margin expansion. 


The company’s North American business solutions sales were unchanged compared to the second quarter of last year, down from 3 percent growth in the first quarter. According to Depot: "Q2 revenue reflects growth in the contract channel of 4 percent, which was offset by expected declines in the direct channel from the continued effects of brand consolidation in the prior year." 
Depot also said it offset softer sales in small-sized businesses with "strong momentum in large and national segments, especially in the government and education customer verticals". Operating profit was $80 million, compared to $105 million last year. 


Depot’s chairman and CEO Steve Odland said: "For eight straight quarters, we’ve executed the initiatives in our strategic plan to consistently deliver double digit EPS growth to our shareholders, averaging 32 percent growth in EPS, as adjusted, over the period. Unfortunately, this streak came to a halt this quarter.