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Office Depot Maintains Outlook

ODP SPLS

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Office Depot Inc. (ODP - Analyst Report), one of the leading suppliers of office products and services across the globe, reiterated its fiscal 2012 outlook. Management stood by its earlier guidance and expects full-year adjusted operating income in the range of $125 to $135 million, up $5 to $10 million from the prior year. 

Further, the company expects to generate free cash flow in the range of $80 to $100 million. Moreover, on the cost front, management remains determined to contain costs and enhance operational efficiencies by closing underperforming stores, reducing exposure to higher dollar-value inventory items, shuttering non-critical distribution facilities, and focusing on providing innovative products and services, all of which should contribute to margin improvement.

The company plans to renovate or shut down 30 to 35 stores and relocate 25 to 30 stores in fiscal 2012. The company also remains on track to remodel and relocate stores extensively in fiscal 2013, which in turn will facilitate the company to reduce occupancy costs and deliver better customer service.

We appreciate Office Depot’s rational approach to slow the pace of stores openings in North America, given the weak consumer environment. The company opened 6 stores in fiscal year 2009, significantly down from 59 stores opened in 2008 and 71 stores opened in 2007. The company opened 17 stores in fiscal 2010 and 9 stores in fiscal 2011. The company plans to increase the store count in the low-single-digits in fiscal 2012.

Currently, we have a long-term Neutral recommendation on the stock. Moreover, Office Depot, which competes with OfficeMax Inc. and Staples Inc. (SPLS - Analyst Report), holds a Zacks #3 Rank that translates into a short-term Hold rating.

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