Office Depot posts loss, stock falls 14.5 percent

CHICAGO Tue Feb 24, 2009 7:00pm GMT

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CHICAGO (Reuters) - Office Depot Inc ODP.N posted a $1.5 billion quarterly loss as small business owners and retail shoppers cut spending sharply, and said it would seek new liquidity sources in 2009, sending its shares down 14.5 percent.

Office Depot's sales have suffered as small business owners and retail consumers spend less on office supplies, a trend that has also hurt peers OfficeMax Inc OMX.N and industry leader Staples Inc (SPLS.O).

Office Depot specifically cited lower spending on such big-ticket items as furniture, computers, printers and TVs in favor of lower-margin items like ink, toner and paper, as well as weakness in the key markets of California and Florida.

"We're disappointed in these fourth-quarter results, which are largely a barometer for what is happening in our economy," Office Depot Chief Executive Steve Odland said on a conference call. "As these times have gotten tough for our customers, they have significantly cut back their spending."

The company said it will close stores and try other ways to raise money in 2009, including selling and then leasing back U.S. and European properties, and selling certain accounts receivable in Europe. It also will see dividends from a joint venture and tax refunds.

The closures will result in an "extremely small percentage" of its 43,000 employees being laid off, a spokesman said.

Bernstein Research analyst Colin McGranahan called the company's earnings "dismal," but said its liquidity was stable.

Office Depot reported a fourth-quarter net loss of $1.54 billion, or $5.64 a share, compared with year-earlier net income of $18.8 million, or 7 cents a share.

The quarter included a noncash charge of $1.27 billion, or $4.54 a share, for goodwill impairment, and pretax charges of $167 million, or 37 cents a share, for store closures and other moves announced in December.

The quarter also included pretax charges of $125 million, mostly from impairment of North American retail store assets.

Sales fell 15 percent to $3.3 billion, below the $3.41 billion analysts polled by Reuters Estimates had expected.

Sales at U.S. and Canadian stores open at least a year, also called same-store sales, fell 18 percent. Same-store sales were tracking better in the first quarter, officials said.

MORE STORE CLOSINGS

In December, the company said it would close 126 stores and lay off about 2,200 people, or 4.5 percent of its workforce, and might exit businesses.

Office Depot said on Tuesday it would close 118 stores in North America this year, including some identified in December, and also plans to exit its retail operations in Japan. At the end of last year, it had 1,267 North American stores.

The company plans to open 15 stores in 2009, down from its previous estimate of 40. It also will close six distribution centers and another related facility in North America and Europe. Capital spending plans for 2009 also were cut to about $150 million from previous plans for $200 million.

The company expects additional charges this year of about $186 million related to store closings and other actions.

Office Depot said it was targeting more than $400 million in cash benefits from internal initiatives in 2009, more than half of which will be in hand by early April, executives said.

Odland said the company expects to be free cash flow positive in 2009.

The company said it was cooperating with the Florida and Missouri attorneys general investigating its pricing practices for government customers. It also said it is cooperating with several federal agencies on the same issue and no relief claims had been made in any of those matters.

Office Depot shares were down 21 cents at $1.24 on the New York Stock Exchange after trading as low as $1.03.

(Editing by Matthew Lewis and Brian Moss)

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