Office Depot Earnings Rise, But So Do Losses

Office Depot have their own version of “Good News, Bad News.” The good news is their earning were up. The bad news is so are their losses.

The Wall Street Journal reports the Boca Raton, Florida-based Office Depot announced earning for the second quarter have risen due to the merger with Office Max, which was completed in November of last year. Office Depot’s sales jumped 59 percent to $3.84 billion, topping the $3.81 billion projected by analysts polled by Thomson Reuters. But the company said sales fell 2 percent on a pro forma basis, which reflects combined sales of Office Depot and OfficeMax.

Unfortunately, the increase did not help overall. Overall, Office Depot posted a loss of $190 million, or 36 cents a share, compared with a loss of $64 million, or 23 cents a share, a year earlier. Excluding interest expense, merger-related expenses, and other items, the company posted a loss of two cents a share compared with a year-earlier loss of three cents a share. Analysts had predicted a loss of two cents a share.

To offset the losses, Office Depot will close about 400 stores in the United States. 150 stores will be closed in 2014. Office Depot is following the lead of Staples, who will reduce its retail footprint by 12 percent within the next few year. Office Depot said it expects market trends will remain challenging across the company’s product lines and distribution channels for the remainder of the year, and reiterated it expects total company sales to be lower than last year’s pro forma sales.

The merger with Office Max is expected to deliver good and bad news for the next few years. The Sun-Sentinel reports Chief Executive Roland Smith said Office Depot expects to realize more than $700 million in annual savings from the merger with OfficeMax by the end of 2016, up from the prior estimate of $675 million. It will take some time before Office Depot will be able to reinvest and not just cut costs.

Office Depot has identified two new target markets where purchasing “is driven by quality, service and experience” that could improve overall sales by $1 billion. He said Office Depot will be testing new business products and services in 20 geographic markets, but declined to identify the target consumers for competitive reasons.

Office Depot also announced that it has settled a California lawsuit for $80 million, which it expects to pay in the fourth quarter.

Five years ago, former Office Depot business accountant David Sherwin, along with the State of California, sued the company claiming Office Depot overcharged state agencies for office supplies. Sherwin died March 16, but his estate continued to pursue the lawsuit.

The settlement is not an admission of wrongdoing, the company said. The allegations related to a contract in place from 2001 to 2011, when Office Depot was under previous management.