Easter Bunny unkind to Office Depot
BOCA RATON, Fla. — The timing of the New Year and Easter holidays negatively affected Office Depot’s first quarter sales which declined 5% to $2.7 billion and led to a $17 million loss compared to a profit of $41 million in the first quarter of 2012.
Sales for the first quarter ended March 30 at Office Depot’s North American retail division declined 6% to $1.1 billion and same-store sales declined 5%. According to the company the decline was mainly driven by technology peripherals and by the consumer demand shift out of laptops and into tablets, which have a lower average selling price and lower basket attachment. Sales in Copy and Print Depot and cleaning and breakroom supplies increased, while supplies and furniture sales were down year-over-year. Average order value was down slightly in the first quarter and customer transaction counts declined approximately 5% compared to the same period last year.
First quarter results come just a little more than a week after Office Depot’s largest stockholder, investment firm Starboard Value, expressed “strong disappointment at the board's failure to work constructively with Starboard to reconstitute the board.” In March, Starboard nominated six candidates, including former Home Depot chief Robert Nardelli, to Office Depot’s board in an effort to strengthen the company’s direction.
First quarter of 2013 results included approximately $25 million of pre-tax charges, comprised primarily of merger-related costs associated with the company’s plan to merge with OfficeMax, restructuring activities and approximately $5 million related to non-cash store asset impairment charges in the North American Retail Division.
“Although our first quarter results were heavily impacted by the holiday timing, we saw a modest improvement in trends late in the period, which gives us confidence going into the second quarter and, ultimately, in achieving our full-year targets,” said Neil Austrian, chairman and CEO of Office Depot. “I’m also very pleased with the progress we have made on the merger over the past two months, especially the selection of Mike Newman, CFO of Office Depot, and Bruce Besanko, CFO of OfficeMax, to lead the integration efforts for the two companies.”
On February 20, the company entered into a merger agreement with rival OfficeMax, which would combine the two companies in an all-stock merger transaction. Office Depot has stated its plans to hold a special meeting of shareholders to approve the merger with OfficeMax as soon as possible, following the completion of the SEC’s staff review of the registration statement and joint proxy statement. Not fast enough for Starboard, which said that, because “it has become clear that the company has no intention of holding the 2013 Annual Meeting of stockholders in a timely manner,” it had no choice but to “seek to bypass the ineffectiveness of the current board" by launching a consent solicitation that would let shareholders vote on the new slate of directors immediately.
The Office Depot board of directors has since appointed Nigel Travis, Tom Colligan and Marty Evans to serve along with OfficeMax board members Jim Marino, Rakesh Gangwal and Francesca Ruiz de Luzuriaga on a CEO selection committee for the combined company. The committee will oversee a comprehensive search process that will consider both incumbent CEOs — Neil Austrian, chairman and CEO of Office Depot and Ravi Saligram, president and CEO of OfficeMax — as well as external candidates. The committee will proceed with the objective of selecting the CEO for the combined company at or prior to the closing of the transaction.