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Job Cuts Boost Office Depot Results As It Pursues 'Culture of Thrift'

Posted on: Friday, 22 July 2005, 21:00 CDT

Jul. 22--Cost-cutting helped Office Depot Inc. report quarterly profits up 26 percent Thursday, compared with last year's quarter. And Steve Odland, who has been leading the company for four months, said that more streamlining is likely as the Delray Beach chain pursues a "culture of thrift."

The news sent shares of Office Depot up $2.85, or 11.49 percent to close at $27.65Thursday, a 52-week high.

Net income for the quarter reached $100.1 million, or 31 cents a share, from $79.2 million, or 25 cents, a year earlier. Sales in the three months ended June 25 rose 6.4 percent to $3.36 billion. North American retail sales were up 8 percent, and stores open at least one year saw a 3 percent sales gain.

Still, in an analysts' conference call, Odland underscored that the company is evaluating the performance of all of its businesses, operations and acquisitions.

"We will look at everything and we will take decisions in the third quarter that may be tough decisions," he said. "There are no sacred cows here."

Odland, who formerly headed AutoZone Inc., joined Office Depot as chief executive and chairman in March.

Lehman Brothers analyst Scott Nesson said that last quarter's profit and the review "give me a lot more comfort around the company's ability to get a better footing in retail and close the gap with Staples." Nesson, who rates the shares "equal weight" and doesn't own them personally, added that the company's review may lead to the sale of some unprofitable assets.

While Office Depot is expanding in the Northeast -- Staples' home territory -- it closed eight call centers in the past nine months and reduced the number of workers at stores to lower costs.

In other results for the quarter, sales at the company's business services group, which includes contract sales to businesses, rose 7 percent. Profit at the division increased 20 percent, the biggest gain in two years. International sales rose 3 percent, but profit fell 20 percent in U.S. dollars and 23 percent in local currencies amid stiff competition that limited price increases.

Meanwhile, the company has begun offering the 2,200 workers at its headquarters incentive packages to leave.

Yet in a phone interview Thursday, Chief Financial Officer Charlie Brown said that the firm's goal is not necessarily to shed jobs, but to offer an attractive exit to workers whose philosophies don't dovetail with Office Depot's new approach.

Brown noted that cost-cutting doesn't necessarily mean layoffs. "All the costs are not about people," Brown said. "It's about thinking about how you do business."

Bloomberg News contributed to this report.

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ODP,

Source: South Florida Sun-Sentinel

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