Who's Minding the Store at Office Depot?
By
Colleen Paulson
July 30, 2008
|
Office Depot's (NYSE: ODP) lackluster second-quarter results weren't a huge surprise, considering the earnings guidance the company had provided. Revenue for the quarter was down by less than 1%, and an overall cost increase of 3.6% drove a loss of $0.01 per share for the quarter versus last year's profit of $0.38 per share.
Office Depot shared plans to cut capital spending and new store openings several months ago and disclosed today that it plans to decrease its workforce, too. This is pretty much a no-brainer: Although sales declines certainly have hurt the company's long-term growth prospects, the lack of cost controls is a huge part of the losses.
Cost of goods sold increased by 3.4% for the quarter, which isn't ridiculous considering the drastic inflation that is affecting everyone. Yes, when fuel prices get to $4.00 per gallon, it's going to be more expensive to run your business. But what doesn't make a lot of sense is Office Depot's 17% increase in general and administrative expenses when its revenue isn't increasing.
Granted, the office supply industry isn't a rapid growth sector at this point, so Office Depot isn't alone in its misery. OfficeMax (NYSE: OMX) also reported second-quarter losses today on one-time charges. Staples (Nasdaq: SPLS) has fared OK, differentiating itself by, among other things, positioning itself as a leading sustainable business. Wal-Mart (NYSE: WMT) might align itself with Dell (Nasdaq: DELL) for computer services in Wal-Mart stores. It's obvious that companies must offer something special to drive revenue growth in this competitive marketplace.
Office Depot wasn't in a great position to begin with, what with a net profit margin of 2.9% for last year's second quarter. Office Depot has been talking about change for several months now, but results have been slow to come for the company whose slogan is "Taking Care of Business." It's time for Office Depot to cut costs to stay competitive and take care of its own business.
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