Retail

Can Office Depot Find a New Buyer?

Chris Lange

Published: August 9, 2017 1:40 pm

Last Updated: January 12, 2020 9:17 am

Office Depot Inc. (NASDAQ: ODP) reported its second-quarter financial results before the markets opened on Wednesday. Although these results were not up to par, it seems more indicative of a deeper problem within the company. In a sense it begs the question of whether Office Depot can find a new buyer.

Shares are getting crushed following these results, but how low do they have to sink before some other company is willing to step in and buy out Office Depot?

Staples was in the hunt to merge with Office Depot, but the deal failed miserably as concession and after concession failed to generate regulatory approvals for the number-one and number-two direct office supplies retailers.

In May, 24/7 Wall St. reported that it had been out there that Staples, who was going to be the acquirer of Office Depot, was in talks to be acquired. Sycamore Partners ended up acquiring Staples in mid-June for a total of roughly $10 per share, valuing the deal over $6 billion.

With Staples out of the equation, who can Office Depot look to?

Staples and Office Depot have faced continued erosion from Amazon and other online merchants. At the same time, many of the core office supplies sales of products just are not needed as much as they used to be.

On the other hand, brick-and mortar-competitors looking to expand their base could be another avenue for a buyout. Staples currently runs just over 1,400 retail stores.

After Amazon acquired Whole Foods and created a brick-and-mortar presence for itself, it would be a logical step for another e-commerce giant to take over this footprint and repurpose them as distribution centers.

For now there is still much to be considered, but as Office Depot’s stock ebbs the potential for an acquisition seems more appealing.

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As for the earnings highlights, the office supplies giant said that $0.06 in earnings per share (EPS) and $2.36 billion in revenue billion, compared with consensus estimates from Thomson Reuters that had called for $0.08 in EPS and revenue of $2.44 billion. And in the same period of last year, the retailer said it had EPS of $0.03 and $3.22 billion in revenue.

In terms of the outlook, Office Depot expects total company sales in 2017 to be lower than 2016, primarily due to the impact of planned store closures, prior year contract customer losses and continued challenging market conditions. At the same time, the firm is predicting adjusted operating income of roughly $500 million for the 2017 fiscal year, while last year the company had $531 million in operating income.

The consensus estimates are $0.53 in EPS and $10.29 billion in revenue for the full year.

Shares of Office Depot were last seen down 22% at $4.75. The consensus analyst price target is $5.33, and a 52-week trading range is $3.01 to $6.24.