Why Office Depot Inc. Shares Dropped Today

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  ) plunged 12% today after the office supply retailer's quarterly results and outlook disappointed Wall Street.

So what: Office Depot has rallied nicely over the past six months on its synergistic merger with OfficeMax, but today's fourth-quarter results -- adjusted loss of $0.03 per share on revenue of $3.5 billion -- coupled with downbeat guidance is forcing Mr. Market to quickly sober up. Although the company did increase its cost-savings estimate to more than $600 million by 2017, a 4.4% drop in North American same-store sales reignites much larger concerns about intensifying online and big-box competition.

Now what: Management now expects 2014 total company sales to be lower than 2013 pro forma combined sales. "For 2014, market trends are expected to remain challenging across our product lines and distribution channels," Office Depot cautioned in a statement. "The expense deleverage from lower sales is expected to offset some of the merger synergies and operating improvements anticipated during the year." Given the strong competitive and operational headwinds continuing to work against Office Depot, average investors would do well to remain on the sidelines.

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