Office Depot Inc has a market cap of $685.7 million; its shares were traded at around $2.74 with and P/S ratio of 0.1.
Highlight of Business Operations:Third quarter sales in the North American Retail Division were approximately $1.2 billion, a decrease of 5% compared to the third quarter of 2011. Comparable store sales in the 1,090 stores that have been open for more than one year and aligned to match the same selling weeks decreased 4% for the third quarter of 2012. Sales of tablets and e-readers increased in the third quarter of 2012 compared to the same period of the prior year, but sales of computers and related products were significantly lower, continuing the trend experienced in the first two quarters of 2012. Customers switching from laptop computers to tablets contributed to lower sales but improved product margins. Fourth quarter 2012 computer sales may be positively impacted by computer and software sales following the release of an update to widely-used software operating system for personal computers. Sales in our Copy and Print Depot increased. Although sales in the supplies category were flat, ink and toner sales slightly increased. Furniture sales were lower, as we were less promotional in this area. Average order value was slightly negative in the third quarter and customer transaction counts declined approximately 4% compared to the same period last year. Total sales for the year-to-date 2012 decreased 7% compared to 2011, reflecting the impacts discussed above, as well as the closure of stores in Canada last year. Also, the quarterly impacts of shifting comparable selling periods from a 53-week to a 52-week year experienced earlier in 2012 was not a significant factor for the year-to-date period. However, the fourth quarter of 2012 will be a 13-week period compared to a 14-week period in 2011.
The International Division reported third quarter 2012 sales of approximately $692 million, reflecting a decrease of 12% in U.S. dollars and a decrease of 4% in constant currencies compared to the third quarter of 2011. The European contract channel sales in constant currency decreased 2% overall with growth in Germany and flat sales in the U.K. being more than offset by lower sales in other countries. Contract channel sales in Asia increased compared to the prior year. Third quarter and year-to-date 2012 sales in the direct channel were lower across the Division. This negative trend in direct sales continues to be an area of focus for the company with additional resources allocated to efforts to acquire and retain customers. The retail channel sales decreased in Sweden and were flat in France. Year-to-date 2012 sales decreased 9% in U.S. dollars and 3% in constant currencies. Sales in the contract channel increased 1%, while sales in the direct channel continue to reflect the downward trend.
Total G&A includes charges related to restructuring activities and actions to improve future operating performance of approximately $6 million and $29 million in the third quarter and year-to-date 2012, respectively. Similar charges of $5 million and $17 million were recognized during the third quarter and the year-to-date 2011. Of these amounts, approximately $1 million and $16 million for the third quarter and year-to-date 2012, respectively, and approximately $3 and $7 million for the third quarter and year-to-date 2011, respectively were included in Corporate G&A; the remainder was included in determination of Division operating profit discussed above. After considering the charges, the comparative increase in Corporate G&A primarily relates to additional project costs and personnel intended to improve performance in future periods. All periods include accrued variable pay at lower than target amounts.
Miscellaneous income, net for all periods presented is primarily attributable to earnings from our joint venture, Office Depot de Mexico. The company accounts for this joint venture on the equity method and summarized financial information is included in Note L of the Notes to the Condensed Consolidated Financial Statements. Joint venture sales for the third quarter of 2012 increased 3% in U.S. dollars and increased 10% in constant currency. Joint venture sales for the year-to-date 2012 increased 1% in U.S. dollars and increased 11% in constant currencies. The joint venture opened one store during the third quarter and opened 12 stores in Mexico, Panama and Guatemala in the year-to-date 2012. Third quarter 2012 and 2011 net income was approximately $21 million and $18 million, respectively, with 50% of those amounts included in our Miscellaneous income, net. Our 50% of joint venture earnings for the year-to-date 2012 was approximately $24 million compared to approximately $25 million in the same period of 2011. In addition to results from Office Depot de Mexico, and results from another equity method investment, Miscellaneous income, net includes gains and losses on our deferred compensation plan and foreign currency transactions.
The effective tax rate for the third quarter and year-to-date 2012 was -6% and 0%, respectively, compared to -139% and -228%, respectively, for the same periods of 2011. The effective tax rate for the third quarter of 2012 reflects the absence of tax benefits in jurisdictions with valuation allowances, such as the U.S., where much of the asset impairment charges were recognized. The year-to-date 2012 rate includes a $16 million accrued benefit based on a ruling from the U.S. Internal Revenue Service (IRS) allowing the company to carryback certain accounting method changes to the 2009 tax year. Receipt of cash related to this ruling is not expected prior to resolution of the previously-disclosed dispute with the IRS relating to a foreign royalty assessment as discussed below. The year-to-date 2012 effective tax rate also includes this benefit and is impacted by the Recovery of purchase price that is treated as a purchase price adjustment for tax purposes. As discussed in Note C, this recovery would have been a reduction of related goodwill for financial reporting purposes, but the related goodwill was impaired in 2008. Additionally, the loss on extinguishment of debt in the United States during the quarter ended March 31, 2012 did not generate financial statement tax benefits because of existing valuation allowances. Similarly, operating losses in other jurisdictions with valuation allowances do not result in deferred tax benefits being recognized in the Condensed Consolidated Statements of Operations. Accordingly, tax expense recognized in jurisdictions with positive earnings, and no tax benefit on certain jurisdictions with losses, can cause the effective rate to be different from blended statutory rates. This interim accounting is likely to result in significant variability of the effective tax rate throughout the course of the year. Changes in income projections and the mix of income across jurisdictions could impact the effective tax rate each quarter.
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