Net sales rose 7% to $4.1 billion. Diluted earnings per share, on the famous GAAP basis, increased 30% to $0.56. On an adjusted basis, excluding charges related to losses on inventories and receivables, diluted earnings per share increased 25% to $0.60.
It's always cool when a company can achieve double-digit growth in the bottom line whether by GAAP or by adjustments. Here are some other statistical positives for Office Depot. Management calculated that adjusted ROIC for the trailing-12-month period improved 280 basis points to 16.1%. That means that the retailer is getting a better bang for its investment buck. (ROIC is a better metric than ROE -- see this article for an explanation.)
Unfortunately, the gross margin gave up 40 basis points, and domestic same-store sales decreased 3%. On the international side of things, the company grew sales by 11%, taking into account the effect of local currencies. Overall, Wall Street's expectations were not met on the top and bottom lines, and investors sent the stock down by well more than 4% in yesterday's session.
Office Depot will have to watch the gross margin and the health of its top line in coming periods. The company says that the transition to the Microsoft Windows Vista platform was partly to blame for the weak revenue performance. So, as more consumers and small businesses change over to the new operating system, Office Depot should be able to find more sales opportunities. But it can't just wait for the PC cycle to take off -- it will need to aggressively chase a better comps scenario through other means.
Looking at the whole picture, I'd say that Office Depot is a strong competitor in the office-supply space. I like the ROIC achievement and I like the global growth. The weak domestic comps give me pause, but I think it is too early to read a lot into them, considering that this is the first time in three years that the statistic has turned negative. Still, I have to agree with David Meier and his analysis of all three players in this arena -- Staples seems to be the best positioned right now, probably due to its size and to its, in my opinion, more valuable brand equity. Don't count Office Depot out yet, though. We'll need to see how the chain fares during the rest of its fiscal year.
Past Foolishness at the office:
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Fool contributor Steven Mallas owns none of the companies mentioned. As of this writing, he was ranked 14,870 out of 27,990 investors in the CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.