Office Depot Results Disappoint, Plans Special Meeting

Tuesday, 30 Apr 2013 10:52 AM

 

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Office Depot Inc reported a weaker-than-expected quarterly profit and said it would hold a special meeting with investors to seek approval for its pending merger with rival OfficeMax Inc.

The news comes as the retailer's board faces heat from its largest shareholder, Starboard Value LP, and awaits regulatory approval for the OfficeMax deal.

Office Depot said it would hold a special investor meeting "as promptly as reasonably possible" after the staff of the U.S. Securities and Exchange Commission finishes reviewing merger-related documents.

The company, which in early April received a request for additional information from the Federal Trade Commission, said it was in the process of preparing its response.

Starboard has nominated six candidates to the Office Depot board and has said the board should be reconstituted whether or not the OfficeMax deal goes through.

Last week, Starboard decided to go directly to Office Depot shareholders. It said that because no shareholder meeting had been scheduled, it "had no choice but to seek to bypass the ineffectiveness of the current board" by launching a consent solicitation that would let shareholders vote on the new slate of directors immediately.

Office Depot reported a first-quarter net loss of $17 million, or 6 cents a share, compared with net earnings of $41 million, or 14 cents a share, a year earlier.

Excluding merger-related costs, restructuring and asset impairment charges, the company broke even on a per-share basis. Analysts on average expected a profit of 5 cents per share, according to Thomson Reuters I/B/E/S.

Sales fell 5.4 percent to $2.72 billion, missing analysts' average estimate of $2.75 billion.

CHALLENGES

While sales to small and medium-size businesses and large corporations rose, sales to clients in the public sector, mainly in its federal and higher education segments, fell due to budget cuts.

Office supply retailers face heightened competition from Amazon.com Inc and Wal-Mart Stores Inc in selling items ranging from pens and notebooks to furniture.

The office supply industry has seen six consecutive years of same-store sales declines, and traditional players like Office Depot and OfficeMax are increasingly losing market share to online retail powerhouse Amazon, according to analysts.

"Office Depot's first-quarter results highlight continued challenges in the office products space," Barclays analyst Alan Rifkin said. He expects results for OfficeMax and industry leader Staples to show the same challenges.

© 2014 Thomson/Reuters. All rights reserved.

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