Back-to-School Gains Elude Office Depot

Apparel, electronics, now office supplies.

Office Depot (ODP) warned Wednesday that sales in the third quarter are slow, the latest signal that consumers are reining in their spending. This follows recent warnings from several clothing chains, as well as from electronics companies like Best Buy (BBY) and Radio Shack (RSH).

The company said it expects same-store sales to fall in the third quarter but should hit its earnings targets due to cost controls. The stock, which is off about 28% on the year, fell 57 cents, or 4.3%, to $12.80 Wednesday.

The company, based in Delray Beach, Fla., said it is comfortable with the current consensus estimate of 27 cents for the third quarter. In last year's third quarter the company earned 20 cents per share. Office Depot also said it's comfortable with the consensus estimate of $1.01 for the full year, up 44% from last year.

But Office Depot is about halfway through its back-to-school shopping season, and the trends don't look good.

"So far, comparable back-to-school sales are slightly negative and below our original expectations," said Bruce Nelson, CEO, in a statement. "Similar to other retailers, we are seeing back-to-school purchasing occur later than in previous years throughout the country."

Other companies in the sector were selling off on Office Depot's news. Staples (SPLS), whose shares sank recently on a downgrade from Goldman Sachs, were off 78 cents, or 5.6%. Meanwhile, OfficeMax (OMX), which two weeks ago reported disappointing quarterly earnings, was off 15 cents, or 3.3%, at $4.45.

Still, there were some positives on the sales front: Office Depot said that its business services segment is performing up to plan, as is its international division.

On Tuesday Merrill Lynch reduced its estimates for Office Depot, anticipating that sales would be off. But the brokerage reiterated its strong-buy rating on the stock, given that margins are holding up and that the company is slashing costs. (Merrill does have a banking relationship with the company.)

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