Office Depot 3Q Profit Falls 9 Percent
(11-20) 07:05 PST West Palm Beach, Fla. (AP) —
Office Depot Inc., the nation’s second biggest office-supply store chain, said Tuesday its third-quarter profit fell 9 percent, hurt by lower consumer spending, an economic slowdown in the U.K. and higher costs in North America.
The company had delayed its quarterly results to revise past financial statements after a whistleblower complaint prompted an independent review of vendor-program accounting. It found weakness in its internal controls and led to the firing of four merchandising employees and 2006 and 2007 results being restated.
Delray Beach-based Office Depot has retained Peter J. Solomon Co. to review its capital structure options and independently advise the company on the proper course of action.
Net income fell to $117.5 million, or 43 cents per share, in the three months ended Sept. 29 from $129.1 million, or 45 cents per share, in the year-ago quarter. The latest period includes a $33 million tax benefit.
Sales rose 2 percent to $3.94 billion from $3.86 billion in the prior-year period.
Analysts surveyed by Thomson Financial predicted profit of 40 cents per share on slightly higher revenue of $3.95 billion.
Its shares fell 40 cents, or 2.2 percent, to $18.40 in morning trading Tuesday.
The company said North American retail same-store sales fell 5 percent for the quarter, hurt mostly by the slumping housing market. Same-store sales, or sales at stores open at least a year, is a key indicator of retailer performance since it measures growth at existing stores rather than newly opened ones.
North American business services segment sales fell 3 percent. While international sales grew 13 percent from the year-ago quarter, the company said the international division still hasn’t met expectations.
“There are signs of an economic slowdown in the U.K. which, if it persists, could provide continued challenges to the division’s operations in the future,” Office Depot said in a statement.
The company announced Oct. 29 it would be delaying its earnings report, due out the next day, because of the vendor program review. The news sent the company’s shares down 14 percent that day.
The company later said it would revise past financial statements. That is because the review found that during the period beginning in the third quarter of 2006 through the second quarter of 2007, funds due or received from vendors were recognized in the current quarter but should have been deferred into later periods.
In a filing with the Securities and Exchange Commission, Office Depot said it would reduce fiscal 2006 third-quarter earnings per share by 2 cents and fiscal 2006 fourth-quarter earnings by 3 cents. For its 2007 fiscal year, the company would reduce first-quarter earnings per share by a penny and second-quarter earnings by 2 cents.
As a result, related amounts of about 7 cents a share would be recognized in future periods, beginning in the second half of 2007 and in decreasing amounts in years from 2008 through 2010.
Analysts were initially concerned when the company delayed its earnings, and released few details.
Once the company revealed results from the review, analysts said the news alleviated some uncertainty on Wall Street as to the magnitude of the accounting issues.
Office Depot has annual sales of more than $15 billion and sells to customers in 42 countries. It is the nation’s second-largest office supplies retailer behind Framingham, Mass.-based Staples Inc.
