May 9, 2017 / 11:07 AM / 5 months ago

Office Depot profit beats as fewer stores help tighten costs

FILE PHOTO: An Office Depot store is pictured in Encinitas, California, February 19, 2013. REUTERS/Mike Blake/File Photo

(Reuters) - Office supply chain Office Depot Inc (ODP.O) reported a bigger-than-expected quarterly profit as expenses fell, in part due to a lower store count, sending the retailer’s shares up as much as 7 percent on Tuesday.

Following its failed merger with Staples Inc SPLS.O in May last year, Office Depot has been streamlining its business by shutting underperforming stores and cutting procurement and overhead costs.

The Boca Raton, Florida-based company is also sharpening its focus on North America by divesting its operation in overseas markets such as Australia, China and parts of Europe.

But, like other domestic retailers, Office Depot continues to be hit by slowing foot traffic as consumers shift to online shopping at e-commerce giants such as Amazon.com Inc (AMZN.O).

Fewer stores in operation in the first quarter helped Office Depot lower its cost of goods sold and occupancy costs by 7 percent, while general overhead expenses fell 10 percent and restructuring costs nearly halved.

But fewer stores meant overall sales dropped 7 percent to $2.68 billion, declining for the ninth straight quarter.

Office Depot’s net income from continuing operations jumped 19 percent to $74 million. Including the results of discontinued operations, net profit more than doubled to $116 million.

Excluding items, Office Depot earned 16 cents per share, beating analysts average estimate of 12 cents, according to Thomson Reuters I/B/E/S.

Office Depot’s comparable sales in North America dropped 5 percent. That was much steeper than the 2.8 percent decline estimated by analysts polled by research firm Consensus Metrix.

The company operated 1,439 stores in North America as of April 1, the end of the quarter. It had 1,555 stores in the year earlier quarter. The company has said it plans to close about 300 more stores in the next three years.

Office Depot said it expects sales in 2017 to be lower than 2016 due to store closures and challenging market conditions.

However, it expects the rate of sales decline to slow through the year as it works to retain some old customers, win new ones and boost its contract channel sales pipeline.

The company’s shares were up 7 percent at $5.46 in early trading on the Nasdaq.

Reporting by Karina Dsouza in Bengaluru; Editing by Savio D'Souza

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