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Office Depot Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 1, 2012 08:00AM
Office Depot Inc. (ODP) filed Quarterly Report for the period ended 2012-03-31.
Highlight of Business Operations:Total operating expenses decreased for the first quarter of 2012 when compared to the first quarter of 2011. However, total operating expenses in 2012 include a benefit of approximately $68 million as recovery of purchase price from a prior business combination, $5 million of costs associated with that recovery, and approximately $23 million of restructuring-related charges and other costs intended to improve efficiency and benefit operations in future periods. Additionally, a non-cash impairment charge of approximately $18 million was recognized in the North America Retail Division, reflecting a first quarter 2012 downturn in sales at certain lower performing stores.
First quarter sales in the North American Retail Division were $1.2 billion, a decrease of 8% compared to the prior year. Because fiscal year 2011 was a 53 week year ending on December 31, first quarter 2012 sales benefited from having fewer selling days impacted by holidays compared to the first quarter of 2011. However, store closures throughout 2011, including the 10 remaining stores in Canada during the second quarter of 2011, negatively impacted total sales for the first quarter of 2012. After considering the holiday shift and store closures, it is estimated that the combined impact on first quarter 2012 sales would have been approximately offsetting. Comparable store sales in the 1,096 stores that have been open for more than one year decreased 6% for the first quarter of 2012. The decline in comparable sales of computers and related products, contributed significantly to the Divisions overall comparable sales decline. The decline reflects the Divisions continued focus on improving the profitability of the business by taking a more strategic approach to the product assortment, pricing and promotion. Customers switching from laptop computers to tablets contributed to lower sales but improved product margins. Furniture sales were lower in 2012 compared to the first quarter of 2011 reflecting promotional activity last year that was not repeated. Sales in our Copy and Print Depot increased, while sales of paper, ink and toner sales decreased. Average order value was slightly negative and customer transaction counts declined approximately 5% compared to the same period last year.
The International Division reported first quarter 2012 sales of approximately $825 million, reflecting a decrease of 2% in U.S. dollars and an increase of 1% in constant currencies compared to the first quarter of 2011. The International Division estimates that first quarter 2012 sales reflect approximately $30 million of benefit from the shift in holidays. The contract channel sales in constant currency increased overall with growth in the U.K. and Germany being partially offset by weakness in sales in other European countries. First quarter 2012 sales in the direct channel were lower across the Division. This negative trend in direct sales will continue to be an area of focus for the company. The retail channel sales increased in both Europe and Asia compared to the first quarter of 2011, with European retail benefiting from the acquisition in Sweden in the first quarter of 2011.
The International Division operating profit for the first quarter of 2012 was approximately $15 million, compared to $27 million in the same period of 2011. Included in this measure of Division operating profit is approximately $18 million of charges in 2012. These charges include an $11 million adjustment to closed facility accruals after negotiations on a previously-pending transaction for the transfer of a closed distribution center were terminated. The adjustment assumes a period without a tenant as well as an estimate of lease incentives. The charges also include approximately $7 million primarily related to severance costs for restructuring activities in several European locations. These activities are intended to consolidate and streamline future operations. Similar charges in the first quarter of 2011 were approximately $6 million. After considering the charges in both periods, Division operating profit increased from operational improvements and lower costs. However, Division operating profit for the first quarter of 2012 included an estimated benefit from the flow through of the shift in holidays that will not recur.
Total G&A includes restructuring and business process improvement charges of approximately $16 million and $6 million for the first quarter 2012 and 2011, respectively. In 2012, approximately $9 million was included in Corporate G&A; the remainder was included in determination of Division operating profit discussed above. Corporate G&A in 2011 included approximately $2 million of charges. Net of these charges, Corporate G&A increased approximately $6 million relating to higher relative variable pay in 2012 and additional project costs and personnel intended to improve performance in future periods.
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