Is the road to growth paved with fewer store locations? Office Depot (NYSE:ODP) seems to think so. Today, the company said that it will close a whole slew of its stores as part of its efforts to restructure its business, increase efficiency, and deliver more growth to investors.
Office Depot will close 16 stores in North America, and 11 stores and a warehouse in its international division. Internationally, it will also relocate a warehouse, consolidate some of its call centers, and discontinue its contract business in one country. Despite the company's disclosure of these elements in a regulatory filing, it has filed for confidential treatment of some details, including specific store locations. The company expects these moves to result in total charges of $82.2 million.
In addition, Office Depot said it expects asset impairment charges of $80.1 million in connection with some of the properties included in its bulk purchase of Kids "R" Us stores from Toys "R" Us last year.
When it comes to office supply stores, Staples (NASDAQ:SPLS) generally gets the most attention (revisit its recent earnings report), with OfficeMax (NYSE:OMX) drawing notice as the No. 3 player whose recent troubles left many observers wondering if it could turn around. Office Depot chugs along in between.
You can argue that every good company needs to know when to shutter stores and initiatives that aren't contributing to profits, and that seems to be the case here. Although Office Depot takes the No. 2 slot next to Staples, investors are obviously banking on the idea that Office Depot's making all the right moves. The company sports a forward P/E of 20, higher than that of Staples, and is trading just shy of its 52-week high. To me, that seems like a premium price for a company with a lot of work to do before it can begin achieving consistent growth.
Alyce Lomax does not own shares of any of the companies mentioned.
