Office Depot Profit on Good U.S. Sales

Retailer Office Depot Inc. (ODP) Thursday posted a higher quarterly profit, thanks to improved sales and profitability at its North America business, beating analysts' expectations and sending shares higher.

Fourth-quarter net income rose to $52.8 million, or 17 cents a share, from $45.8 million, or 15 cents a share, a year earlier.

Total company earnings per share excluding charges were 30 cents compared with 22 for the fourth quarter of 2003.

"Fourth-quarter EPS from continuing operations was 30 cents against 22 centslast year — was well ahead of the 21-cent Street consensus," said Scott Nesson,analyst at Lehman Brothers.

"What people are most encouraged by is not just the slightly better sales but the improved profitability within Office Depot's North American retail segment."

Total company sales for the fourth quarter rose 7 percent, to $3.5 billion. Worldwide comparable sales in the 956 stores and 45 delivery centers that have been open for more than one year increased 2 percent for the period.

North American retail sales rose 8 percent for the fourth quarter, boosted by improved sales of technology products such as desktop computers and notebooks. Fourth-quarter comparable sales rose 4 percent, "our best performancein 19 quarters," Office Depot Chief Financial Officer Charlie Brown told a conference call.

Fourth-quarter gross margin for the region improved slightly as increased vendor rebates and promotional support and reduced inventory clearance charges offset a higher mix of lower margin technology products. Operating profit rose 106 percent.

The company opened a total of 69 net new stores in North America for the year. Neil Austrian, chairman and chief executive, told the conference call it would continue to "aggressively roll out new stores in the Northeast."

Its Business Services Group in the region increased profitability by 2 percent in the quarter but sluggish catalog sales held back the overall growth rate.

Office Depot said it would not provide formal earnings guidance, given the expected arrival of a new chief executive in 2005. It said the new CEO was expected to arrive in the first half of this year.

Delray Beach, Florida-based Office Depot said Europe continued to be a challenging market and it was taking steps to improve cost structure in the region and to boost the performance of its recently acquired French retailer Guilbert.

"On balance, 2004 was a good year. We improved both the sales and profitability of North American Retail," Austrian said.

"International earnings grew over last year but the sales contribution from the Guilbert acquisition fell short of our targets. Realizing the objectives of this key acquisition remains a top priority as we move forward," he added.

Sales in the international group rose 9 percent in U.S. dollars but were flat in local currencies for the quarter. Revenue as measured in local currencies increased in the United Kingdom and decreased in France, Germany and the Netherlands. Comparable sales trends in the last three countries improved however over the third quarter.

Shares of Office Depot rose 81 cents or 4.6 percent to $18.33 on the New York Stock Exchange (search).