
Office Depot Assures Investors Staples, Amazon Won't Kill It
Office Depot's (ODP) - Get Report life after a failed merger with Staples (SPLS) in a office supply world challenged by Amazon (AMZN) - Get Report will likely require frequent sales jobs by its top execs to concerned investors.
The first assurance by Office Depot that the future remains bright came on Monday evening, a few days after a judge blocked a deal that would have merged Staples with its smaller competitor. "Today is not about looking back, but looking forward," said Office Depot Chairman and CEO Roland Smith to kick off a call with analysts.
Smith highlighted Office Depot's lack of near-term debt maturities, solid operating cash flow generation last year, opportunities to cut more costs as part of its integration of Office Max (acquired in 2013) and the rollout of smaller store concept that has been in test to 20 locations later this year as reasons to be optimistic.
"The core office supplies business continues to decline, and the status quo will not allow us to achieve our sales goals," conceded Smith. The company said it's analyzing various capital structure and shareholder return alternatives, and has engaged Bain & Company to assist with a comprehensive strategic review of its business. The review is expected to be finished sometime in the third quarter.
Execs stopped short of saying Office Depot is still for sale, but instead the strategic review will focus on potentially enhancing shareholder value through dividends and stock buybacks.
But the call was not questions on Office Depot's medium-term financial outlook.
First, execs did not commit to its full-year operating income (adjusted for one-time items) guidance of $500 million, instead telling Wall Street it would update its guidance when it reports its second-quarter results. Second, the company shed light on high levels of employee turnover in key positions over the past year as folks feared job loss if the Staples merger had gone through. "It has been hard to hire people, and we have critical positions we now plan to hire for," said Office Depot Chief Financial Officer Stephen Hare.
Finally, Office Depot wasn't as specific as its larger rival Staples in detailing how it would regain market share in the competitive office supplies market. TheStreet looks at the actions Staples announced almost immediately after learning of the judge's decision to soothe the minds of worried investors.
1. Here comes lower prices for some office supplies.
Staples said it will pursue market share gains in core categories such as office supplies, ink, toner and paper. To support this effort, the company will invest in lower prices and work to make its supply chain quicker.
2. Staples looking to divest European operations.
Staples plans to explore strategic alternatives for its struggling European operations, which is the main component of the company's international operations. The company operates about 278 retail stores in Europe, with the largest concentration being in the United Kingdom, Germany, the Netherlands and Portugal.
Staples operates internet and direct mail catalog businesses in Europe, with a significant concentration of sales residing in France, Italy and the United Kingdom.
The international segment has been a laggard for Staples for years, and saw sales plunge 16.3% last year to $3.2 billion. The business racked up a $41 million loss last year following a $21 million loss in 2014.
By exiting Europe, Staples will likely be able to reinvest the savings in lower prices and new services for consumers in its home market in North America.
3. Staples goes on the prowl for acquisitions.
Staples, armed with savings from its cost-cutting efforts and badly in need of growth, said it intends to look for acquisitions of business-to-business service providers and companies specializing in categories beyond office supplies. Acquisitions should help Staples differentiate itself from Office Depot, and ultimately gain market share over time.
Office Depot representatives did not return several emails asking to be interviewed for this story.









