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Office Depot N.A. Sales Soar 15%

2/16/2006 08:32:00 AM Eastern

Delray Beach, Fla. — Office Depot enjoyed continued strength in its North American retail division during the fourth quarter, with sales climbing 15 percent, to $1.7 billion, up from $1.5 billion in the year-ago three months, while comp-store sale jumped 5 percent.

North American retail at the office products and services chain reported a $119.1 million operating profit in the fourth quarter, ended Dec. 31, or 6.9 percent of sales, up from a year-on-year $98.9 million, or 6.6 percent of sales. The improved gross margin was due to broad-based category-management improvement and increased private-brand sales, said the company.

Effective advertising, leverage from a 53rd week of sales and expense controls more than compensated for incremental costs associated with the addition of new stores during the quarter, and helped to increase operating profit.

The retailer reported a $7 million charge in the fourth quarter, compared with a year-ago charge of $2 million, and said, excluding the 53rd week, fourth quarter North American retail sales rose 8 percent.

During the fourth quarter, Office Depot opened 41 new stores, while closing one office supply store. At the end of the three months, the chain operated 1,047 office products superstores throughout North America.

Office Depot also announced the acquisition of a controlling interest in Best Office, a South Korean office supply company with revenue above $44 million, based upon more than 70 franchised and company-owned retail stores. Office Depot is hoping to boost its international financial results as competition continues to grow.

For the 12 months, North American retail sales climbed 10 percent, hitting $6.5 billion, up from $5.9 billion in the same period the previous year. Comp-store sales rose increased 3 percent.

Operating profit, however, dropped to $318.9 million, or 4.9 percent of sales, from a year-on-year $388.3 million, or 6.6 percent of sales.

Consolidated fourth quarter sales at Office Depot grew 7 percent, hitting $3.7 billion, up from $3.5 billion the previous year. Excluding the 53rd week, sales for the quarter climbed 2 percent.

Consolidated net earnings came in at $106.3 million, more than double the $52.1 million reported in the same quarter in 2004. Without charges and the 53rd week, earnings would have been $117 million, a 31 percent increase over the same period the prior year.

For the quarter, gross profit as a percentage of sales was 31.1 percent, down from 31.8 percent year-over-year, primarily attributable to a decline in the company’s international division. Operating expenses for the three months dropped to 27.4 percent, from 28.9 percent last year.

For the 12 months, consolidated sales hit $14.3 billion, up from $13.6 billion in 2004. Net income slipped to $273.8 million, from a year-ago $335.5 million.

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