Is Office Depot Back From the Dead?

After news broke that Barron's could see shares of Office Depot skyrocket, the company's stock rose 4%. This came in spite of its problems in recent years, and even at a time when rival Staples is struggling. Is Barron's right, or is Office Depot still heading under?

Jun 11, 2014 at 5:30PM


Source: Wikimedia Commons. 

In an unlikely turn of events, shares of Office Depot (NASDAQ:ODP) jumped nearly 4% to close at $5.39 on June 9, after Barron's released a report saying the business's shares could rise as high as $8 as its turnaround by CEO Roland Smith picks up steam. If this comes to fruition, the company's investors could be handsomely rewarded, but is it logical to conclude that the home and office supplier is in the clear when even rival Staples (NASDAQ:SPLS) continues to struggle?

Office Depot's been in real trouble
The past few years have been somewhat of a mixed bag for Office Depot. Between 2009 and 2013, the retailer saw its revenue fall by 7% from $12.1 billion to $11.2 billion. According to the company's most recent annual report, this decline in sales was due, in part, to a 3% fall in store count (excluding the 823 it acquired through its merger with OfficeMax in 2013), but can also be chalked up to an aggregate comparable-store sales decline of 24% during the same timeframe.

ODP Revenue (Annual) Chart

ODP Revenue (Annual) data by YCharts.

Although its revenue has fallen, Office Depot has experienced one positive development. Over the past five years, the retailer saw its net loss of $596.5 million narrow to a loss of $20 million. Despite being hit by falling sales, management was able to significantly reduce costs, primarily in the company's selling, general and administrative expenses. Through cost-cutting initiatives and corporate restructuring, the company was able to reduce this metric from 29.9% of sales in 2009 to 22.8% by the end of 2013.

How does Office Depot stack up against Staples?
Over a similar timeframe, Staples has performed better in terms of revenue, but the comparison between it and Office Depot when it comes to profits isn't as clear. Between 2009 and 2013, Staples saw its revenue fall a slightly more modest 5%, from $24.3 billion to $23.1 billion as its 3% decline in store count was met with a more timid aggregate comparable-store sales falloff of 9%.

SPLS Revenue (Annual) Chart

SPLS Revenue (Annual) data by YCharts.

In terms of profits, however, Staples did both better and worse than Office Depot. During the most recent five-year period, the retailer saw its net income drop 16% from $738.7 million to $620.1 million. In addition to being negatively affected by falling revenue, the company's bottom line was impaired by its cost of goods sold, which rose from 73.3% of sales to 73.9%, and from its selling, general and administrative expenses, which rose from 20.2% of sales to 20.5%. Although turning a profit beats net losses, the fact that the business's bottom line contracted while Office Depot's improved is cause for concern.

Is there salvation for Office Depot, or is it game over?
According to the report by Barron's, Office Depot can be expected to improve moving forward because of restructuring. By 2016, the retailer expects to cut its store count by about 20% (400 stores). If management is correct about the end result, this move will reduce costs by around $675 million per year.


Source: Office Depot.

Another area the company expects to focus on is the expansion of its North American Business Solutions segment. Looking at Office Depot's most recent annual report, we can see that the segment accounted for just 32% of the company's revenue in 2013 but made up nearly 73% of its operating income. With high renewal rates and revenue that has risen by 10% over the past three years while the company's aggregate sales have fallen 2%, it's likely that any turnaround of the business can only be accomplished by leveraging this existing resource.

Foolish takeaway
It's not too hard to see that Office Depot isn't sitting all that pretty. In addition to seeing declining revenue, the company's nearly continuous net losses have to be discouraging to its shareholders. However, if the business can succeed in implementing its plan to improve operations, it's possible its prospects could improve. For this reason alone, the Foolish investor who thinks management has what it takes to achieve these goals might find value in the retailer, but for those looking for a less risky alternative, Staples might be a good opportunity to analyze in greater detail.

Top dividend stocks for the next decade
Instead of investing in companies that have questionable fundamentals like Office Depot and Staples, the Foolish investor should keep in mind that attractive value opportunities can be discovered in businesses that post strong, stable dividends primed to deliver value for the next decade... or longer!

The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Daniel Jones has no position in any stocks mentioned. The Motley Fool owns shares of 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