The Recovery of Office Products, Sort Of
Office Depot is back, sort of. Shares surged on Tuesday after the retailer of office supplies posted a better quarterly report than expected. If you follow this industry, the news is more than welcome.
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Office Depot Inc. (NYSE: ODP) is back, sort of. The shares surged on Tuesday after the retailer of office supplies posted a better quarterly report than expected. If you have followed this industry, the news is more than welcome. This should be considered good news for Staples Inc. (NASDAQ: SPLS) as well, but the move is not going up the ladder.
The combined Office Max and Office Depot had some 1,900 stores, and at least 400 will be closed — about 20% — later this year. While its same-store sales were down by 3% in the most recent quarter, the adjusted earnings came to $0.07 per share on $4.35 billion in revenue. Thomson Reuters was calling for $0.03 in earnings per share on $4.28 billion in revenue.
Before you go celebrate, keep in mind that the company posted a wide loss on a net basis. It is also hard to compare real revenues because of the merger, but the negative same-store sales should speak for itself.
What is driving shares higher is that the company raised its annual cost savings target post-merger to more than $675 million by the end of 2016. Its prior outlook was more than $600 million.
As far as why Staples is not enjoying the same gain, it may be because the companies are in slightly different situations. Staples is also much larger at $8.2 billion in market capitalization, versus only $2.6 billion for Office Depot.
Office Depot shares were up a sharp 18% at $4.94 in the first hour of trading, on more than 200% of normal volume with 20 million shares trading hands, and against a 52-week range of $3.75 to $5.85. Amazingly, Staples shares were up only 1% at $12.68 in light volume of 3.2 million shares within the first hour of trading.
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Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. www.247wallst.com.
