The Recovery of Office Products, Sort Of

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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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