Office Depot Inc. Reports Operating Results (10-K)
Office Depot has a market cap of $824.6 million; its shares were traded at around $3.02 with a P/E ratio of 98 and P/S ratio of 0.1.
Highlight of Business Operations:Sales in our North American Retail Division decreased 2% in 2011, 3% in 2010 and 16% in 2009. The decline in sales reflects the closing of 12 stores in Canada during 2011 and, in 2009, the closing of 120 underperforming stores as part of a strategic business review. Comparable store sales in 2011 from the 1,107 stores that were open for more than one year decreased 2%, with the fourth quarter down 5% compared to the prior year. Comparable store sales in 2010 from the 1,124 stores that were open for more than one year decreased 1%. The 53rd week in 2011 added approximately $78 million to the Divisions full year reported sales. Transaction counts were lower in both 2011 and 2010, consistent with the comparable store sales declines. Sales in technology services, Copy and Print Depot, seating and office materials increased in 2011 compared to 2010, while sales of technology products, technology peripheral items and some office supplies declined. Sales in furniture, technology, technology services and Copy and Print Depot increased in 2010 compared to 2009; sales of supplies declined. Our decision to reduce promotions in select categories contributed to lower sales in both 2011 and 2010.
The North American Retail Division reported operating profit of approximately $135 million in 2011, $128 million in 2010 and $106 million in 2009. Division operating profit in 2011 included approximately $12 million of charges associated with the closure of stores in Canada. Charges for store closures in 2009 were managed at the corporate level and not reflected in the determination of Division operating profit. Gross margins increased in 2011 from a change in the mix of sales away from technology products and lower promotional activity, as well as continuing benefits from lower occupancy costs. Gross margins in 2010 also benefited from lower promotional activity and lower product cost driven by line reviews and increased sales of direct import products. Operating profit in 2011 included severance and other costs associated with the store closures in Canada, higher variable based pay and incremental costs incurred to drive increased customer focused selling activities. These factors were offset by a positive contribution from the 53rd week in 2011, decreased advertising expenses and other favorable items including benefits recognized from changes to our private label credit card program. Advertising expense increased in 2010 compared to 2009 and was partially offset by lower variable based pay. Division operating profit in all periods was negatively affected by the unfavorable impact our sales volume decline had on gross margin and operating expenses (the flow through impact).
Sales in our International Division in U.S. dollars decreased 1% in 2011, 5% in 2010 and 16% in 2009. Constant currency sales decreased 5% in 2011, 2% in 2010 and 9% in 2009. Excluding the revenue impact from the fourth quarter 2010 dispositions of businesses in Israel and Japan and the deconsolidation of business in India, as well as the first quarter 2011 acquisition of a business in Sweden (the Portfolio Changes), constant currency sales were 1% lower in 2011 compared to 2010. The 53rd week added approximately $28 million to total Division sales. Contract channel sales in constant currencies increased 3% in 2011 and 1% in 2010. The 2011 increase reflects growth in field sales as a result of staff added in the last two years, as well as the 2011 acquisition. Constant currency sales in the direct business declined 6% in 2011, after considering the Portfolio Changes, and declined 5% in 2010.
Division operating profit totaled approximately $93 million in 2011, $111 million in 2010, and $120 million in 2009. Included in Division operating profit for 2011 and 2010 were charges of approximately $31 million and $23 million, respectively. The 2011 charges primarily relate to severance and other costs associated with facility closures and streamlining processes. The 2010 charges resulted from the sale of operating subsidiaries in Israel and Japan, as well as facility closure and severance costs associated with consolidation arrangements in Europe.
Net earnings (loss) in 2011 and 2010 include non-cash settlements of uncertain tax positions and related interest, as well as changes in valuation allowances. The 2011 settlements impact the $360 million decrease in accrued expenses and $15 million of deferred taxes in determining cash flow from operating activities. Net working capital and other components increased $180 million in 2011, compared to an increase of $94 million in 2010. The greater change in 2011 reflects adjustments of approximately $113 million for the non-cash tax and interest settlements, compared to approximately $41 million of similar settlements in 2010. The decrease in receivables in each of the years 2011, 2010 and 2009 reflects lower sales, improved collections, and certain changes in vendor purchase arrangements. Inventory balances were lower at the end of 2011 as initiatives were put in place during the year to better manage safety stock and minimum presentation levels. These sources of cash in 2011 were offset by decreases in trade and nontrade accounts payable and accrued expenses. Additionally, during 2011, we received a $25 million dividend from our joint venture. Non-cash charges for asset impairments impacted 2010 and 2009 and cash payments associated with restructuring activities and continuing payment of leases on closed facilities affected each of the three years.
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