Why Office Depot Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Office Depot (NYSE: ODP  ) were rocketing higher today, up as much as 20% after a surprising earnings report.

So what: Thanks to lower costs, the office-products retailer turned in an adjusted earnings per share of $0.06 despite revenue declining 5% and same-store sales falling 4%. That figure easily beat the Street's EPS estimate of a penny. Without adjustments for restructuring and impairment charges, the company posted a loss of $70 million; however, free cash flow clocked in at $190 million for the quarter.

Now what: In many ways, office retailers are a perfect storm of dying industries. Demand for items like paper products, office electronic staples such as PCs, printers, and faxes, and even for bricks-and-mortar stores themselves is all declining. It's no surprise to see a company like Office Depot posting negative top-line growth, and its P/S valuation of $0.06 indicates Wall Street has little confidence in a turnaround. Cutting costs will only go so far. Unless it can find a way to reverse its sales slide, this company is going the way of the dinosaurs.

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