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Office Depot Reports Higher Sales, Earnings For Q4, Year

2/14/2007 12:41:00 PM Eastern

Delray Beach, Fla. — Office Depot reported higher sales and net earnings for the fourth quarter that ended Dec. 30, 2006.

Total company sales for the fourth quarter grew 3 percent to $3.8 billion compared with the fourth quarter of 2005. Excluding the 53rd week of 2005, sales increased 8 percent compared with the prior year. North American Retail comp-store sales were up 1 percent for the quarter, the 12th consecutive quarter of positive comp sales.

Office Depot reported net earnings for the quarter were $135 million compared with $106 million in the same quarter of the prior year. Excluding certain items in both periods (primarily charges and the effect of the 53rd week in 2005), net earnings as adjusted increased to $152 million in the fourth quarter of 2006 from $117 million in 2005.

“We are pleased with the performance of our business in the fourth quarter,” said Steve Odland, Office Depot’s chairman/CEO. “The strategic initiatives that we have implemented have led to sales growth in each of our divisions as well as lower operating expenses and expanded total company margins. This overall growth in sales and operating margin expansion was realized despite a highly promotional holiday retail environment and reduced technology sales due to the impending release of Microsoft Windows Vista at the end of January. This reflects the strength of our overall business model.”

Fourth-quarter sales in the North American retail division were $1.7 billion, approximately even with the same period last year. However, sales increased 7 percent over the prior year after consideration of the impact of the 53rd week in 2005.

Comp-store sales in the 1,036 stores in the United States and Canada that have been open for more than one year increased 1 percent in the fourth quarter vs. a high 5 percent comp from the prior year. “Comparable sales are more influenced in the fourth quarter by consumer holiday spending vs. our more traditional business customer sales and were impacted in 2006 by a heavily promotional consumer sales environment coupled with a lapping of the influence from 2005 hurricane recovery sales that helped boost sales in the fourth quarter of 2005,” the company said.

The chain also reported growth in private-brand products, while more profitable, reduced comps due to their lower average selling price than branded comparisons.

The North American retail division had an operating profit of $122 million for the fourth quarter of 2006, up from $103 million in the same period of the prior year.

During the quarter, Office Depot continued to accelerate the pace of store expansions and remodels by opening 39 new stores (115 for the year) and remodeling 63 (176 in 2006). Despite cost pressures, operating profit margin improved 120 basis points to 7.1 percent in the quarter from 5.9 percent in the prior year period.

At the end of the fourth quarter, Office Depot operated a total of 1,158 stores throughout the United States and Canada.

Inventory per store was $935,000 as of the end of the fourth quarter of 2006. This is lower than the prior year and normal seasonal levels due to winter storms in the western United States which impacted late-quarter replenishment efforts, and lack of supply of computers pre-Microsoft Windows Vista launch, the company said.

For the year, sales were $15 billion, an increase of 5 percent from the prior year. Excluding the 53rd week of 2005, sales for the year increased 6 percent as compared with 2005. Comparable sales for the year in the North American retail division increased by 2 percent, the chain reported.

Net earnings for 2006 were $516 million compared with $274 million in 2005. For the year, operating profit as a percentage of sales was 4.9 percent compared with an operating profit of 2.4 percent in the prior year. The operating profit margin, as adjusted, increased 90 basis points to 5.3 percent from 4.4 percent.

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