Slow sales and fast winds hit Depot profit


In the toughest of months, Office Depot issued a Q3 profit warning, found its heartland battered by hostile weather and revealed that its Guilbert acquisition was not living up to expectations just yet.

The firm announced that Q3 earnings would fall short of expectations due to disappointing sales and the disruptive impact of tropical storms.

The firm expects EPS of $0.26 to $0.28 cents a share, compared to consensus estimates of EPS of $0.33 cents.

CEO Bruce Nelson said: "Revenues in the quarter have not met our expectations across all three of our business units. In addition, we have sustained unexpected costs and lost sales from the impact of three major storms and the contingency planning for a fourth storm, Hurricane Ivan."

A significant portion of Depot’s revenue base comes from areas impacted by the tropical storms. The hurricane also caused Bruce Nelson to cancel his scheduled appearance at the Goldman Sachs 2004 Global Retailing Conference in order to concentrate on recovery opertaions.

Depot’s annual investor conference, which was originally to take place from 21 to 22 September at The Breakers Hotel in Palm Beach, has also been rearranged for 15 to 16 November.

On the sales front, European sales, in local currencies, were "notably" below expectations in catalogue operations and the Guilbert contract business. Depot added that Guilbert has not yet produced the revenue lift expected at the time of its acquisition. North American retail comp sales were "weaker than expected" with the crucial back-to-school sales mirroring other retailers by being "well below expectations".

While still expecting the strongest retail comp growth of the year in Q4, Depot added that this will also fall short of earlier growth projections of high single digits.

Looking ahead to the future, Nelson said that Depot expects to see benefit from a number of growth and profit initiatives including the rebuilding of the Guilbert sales force and the continued rollout of the M2 retail store format in North America. (see ‘pressure’, page 38)

Delray Beach (FL)