first-quarter earnings declined on flat sales and anaccounting change, the company reported today.
The office products retailer earned $79.2 million, or 25 cents ashare, in its quarter ended March 29. That was down from earnings of$102.7 million, or 32 cents a share, in the year-ago quarter.
The Delray Beach, Fla-based company's sales rose just 1% in thequarter to $3.06 billion.
Excluding earnings from discontinued operations and a $25.9 millioncharge dealing with promotional fees paid by its vendors, the company would have earned $103.9 million, or 33 cents ashare. That slightly topped the expectations of Wall Street analysts,who had projected that Office Depot would make 32 cents a share, according toThomson Financial/First Call.
Office Depot saw its gross profit margins, the difference betweenwhat it charges customers for its products and what it pays suppliersfor them, shore up in the quarter. The company posted a gross margin of$959 million, up 9% from the previous year. Given the flat sales, thegross margin improved 2.4% as a portion of sales, to 31.4%.
But while the company's top-line margin was up, the company'soperating profit dropped 1% to $161.3 million, due largely to a sharpincrease in its store operating and sales costs. Such costs rose morethan 12% to $671.2 million. As a portion of sales, store operating andsales costs increased 2.2% to 22%.
The company's general and administrative and other operating costsalso rose in the quarter. Overall, the company's operating costs increased about 12% to $797.7 million. That sent operating costs 2.5 percentage points higher to 26.1% of sales.
For the second quarter, the company said it expects its profits tofall below last year's levels, excluding the effect of the accountingchange for promotional fees. Not including that change, but including discontinued operations, the company earned $56.9 million, or 18 cents a share, in the second quarter last year, on $2.64 billion in sales.
"The second quarter of the year is historically our lowest sales-volume quarter, and combined with some pressure on retail and catalogmargins, as a result of an increase in highly targeted promotionaloffers, it will be difficult to achieve last year's second-quarterprofit levels in the absence of positive North American retail comps,"Office Depot said in a statement.
For the year, the company expects to increase its earnings per share3% to 5% over last year. In fiscal 2002, Office Depot earned$311,483 (or 98 cents a share) from continuing operations.
Office Depot sold off its Australian business in early 2003. Theresults of that operation are excluded from its report of continuingoperations.