Office Depot Dogged by Economic Woes

Sales for furniture and supplies were soft in the second quarter, mainly due to small businesses -- many of which are home-based -- cutting back on their spending. Odland said the company first noticed the purse tightening in the back half of the first quarter, and that it continued through the second quarter. He expects more of the same for the current quarter.

"We found that small businesses tend to act more like consumers than they do like medium to larger businesses," Odland said, describing them as more sensitive to gas prices and interest rate adjustments.

Office Depot opened 15 new retail stores in the second quarter but scaled back its plans for the rest of the year. Instead of 150 stores, it will now open 125 in 2007. Next year, it will open 150 stores, down from the company's original goal of 200.

Odland added that Office Depot is already seeing early indications of a tough retail environment in the third quarter that could result in stiff competition and heavy promotions for the back-to-school season.

The bleak view sent rival OfficeMax(OMX Quote) down $3.24, or 8.8%, to $33.50. Staples(SPLS Quote) declined 90 cents, or 3.7%, to $23.19.