Office Depot, Staples, or FedEx: Which Should Be on Your Radar?

Mr. Market liked what he saw from Office Depot in its latest fiscal quarter, subsequently pushing the company's share price up by a double-digit amount. Is it time for investors to buy in?

Jun 4, 2014 at 9:45AM


Source: Office Depot

The office supply space has definitely not been the place to make money lately, with share prices of industry leaders like Office Depot (NASDAQ:ODP) and Staples (NASDAQ:SPLS) being pressured by declining sales and evaporating profit margins. The companies have anecdotally been hurt by a rise in new competitors to the space, as everybody from online purveyors to mass merchandisers angles for a share of the office supply business.

Despite the difficult business climate, though, Office Depot came through with better-than-expected profitability in its latest financial update; solid cost savings from its 2013 merger with Officemax subsequently led to a double-digit gain in its share price. So is the company a good bet for investors at current prices?

What's the value?
Office Depot is currently the largest domestic operator of office supply stores as a consequence of its merger with OfficeMax, a deal that nearly doubled its store footprint. However, the company is likely to relinquish that title back to Staples in the near future because it plans to close roughly 400 stores, including 150 stores in 2014. Office Depot's grand plan will likely allow it to hold on to the incremental customer base gained from the OfficeMax merger while eliminating duplicate costs and redundant stores, thereby making itself a more profitable entity.

In Office Depot's latest fiscal quarter, it looks like the plan is working; this is evidenced by higher operating profitability that led to a 33.3% jump in adjusted operating income. While the company's gross margin remained under pressure because of a highly promotional selling environment, cost savings at the corporate level more than offset the gross-margin decline.More importantly, in the process of assimilating OfficeMax, Office Depot has identified even more cost savings than originally anticipated, so management raised its profitability outlook for the current fiscal year.

Copy & Print is just the beginning
Of course, operating costs can only be whittled down so far. Office Depot ultimately needs to find a way to improve its gross margin, ostensibly through greater inroads in the services area. The company has found some positive momentum in this area through its Copy & Print Depot operation, but it seems to be a bit behind Staples, which generates roughly 7% of its total sales from the services area.

Like Office Depot, Staples has been generating positive sales momentum with its copy and print services, a lonely area of growth for the company in its latest fiscal year. Staples is also aggressively going after 3-D printing services; it recently announced a partnership with major manufacturer 3D Systems, which will include 3-D printing demonstration areas and specially trained personnel in a pilot group of stores. Undoubtedly, the goal is to improve Staples' operating margin, which dropped sharply in fiscal 2013 compared to the prior year.

A better way to go
There seems to be little doubt that Office Depot is on the right track as it slowly tries to improve its profitability, thereby fulfilling the rationale behind the merger with Officemax. That being said, the company still seems to be a work in process, given that its updated outlook still only equates to an adjusted operating margin of around 1%.  As such, investors looking for gains in the office supply space should probably go with an operator that views office supply sales as a complementary business initiative, like FedEx (NYSE:FDX).

The transportation giant participates in the office supply space through its national network of roughly 1,800 FedEx Office stores, which sell a limited variety of office supplies and services. Unlike Office Depot and Staples, though, the stores don't seem to be a profit center in and of themselves; rather they seem to be a conduit to sell more of the company's delivery services, while providing convenient access points for its customers. On that score, the stores seem to be doing their part, as FedEx has continued to report overall volume gains for its business in fiscal 2014, including a strong 9% volume increase for its FedEx Ground franchise.

The bottom line
Shares of Office Depot received a lift from its recent financial update, no doubt benefiting from management's rosier outlook for the current fiscal year. However, with organic sales growth negative and operating margins razor thin, sustainable profit growth will likely be difficult for Office Depot to achieve and investors should let this opportunity pass by.

3 stocks poised to be multi-baggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Robert Hanley owns shares of Office Depot. The Motley Fool recommends 3D Systems and FedEx. The Motley Fool owns shares of 3D Systems and Staples. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers