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Office Depot Results Lower; CFO, Merchandising VP Exit

2/26/2008 10:08:00 AM Eastern

Delray Beach, Fla. — Office Depot reported disappointing fourth quarter and full-year sales and earnings and announced that its chief financial officer and its merchandising executive VP are leaving.

Patricia A. McKay, executive VP/chief financial officer, is leaving the chain, effective March 1. Charles E. Brown, Office Depot’s president of its International division, has agreed to assume the role of acting CFO following McKay’s departure. Office Depot plans to begin its search for a permanent Chief Financial Officer immediately and will announce a successor when this process is completed.

Additionally, Kim Maguire, merchandising executive VP, is leaving at the end of the month for personal reasons, and Office Depot said it “hopes to fill this role quickly.” Total company sales for the fourth quarter, ended Dec. 29, 2007, were up 1 percent to $3.9 billion. Total company net earnings were $19 million compared to earnings of $127 million in the same period of 2006.

Total company net earnings were $19 million compared to earnings of $127 million in the same period of 2006. Office Depot’s total operating expenses, as adjusted, represented 26.3 percent of sales, an increase of 40 basis points over the fourth quarter of 2006. EBIT, as adjusted, was $6 million in the fourth quarter of 2007 or 0.2 percent as expressed as a percentage of sales, compared to $201 million or 5.2 percent in the prior-year period.

Sales in the North American retail division were down 3 percent with comp-store sales down 7 percent for the quarter. The chain said results continue to be negatively impacted by difficult housing-related economic conditions in key markets, particularly Florida and California. Combined, these two states represented 26 percent of total store sales and about 40 percent of the total comp-sales decrease in the fourth quarter.

Operating profit in the North American retail division was $23 million for the fourth quarter, a decline from $109 million in the same period of the prior year. Although costs were managed effectively in the fourth quarter, broader economic factors continued to pressure profit margins, which decreased 490 basis points vs. the fourth quarter 2006, the firm said.

During the fourth quarter, Office Depot opened 12 new stores and closed 2 stores, bringing the total store count to 1,222. The chain also remodeled 12 stores, bringing the yearly total to 177.

For the full year, sales increased 3 percent to $15.5 billion. Net earnings for fiscal 2007 were $396 million compared to earnings of $503 million in the same period of 2006. For the full year, EBIT, as adjusted, decreased 31 percent from the prior year and EBIT margins compressed by 180 basis points to 3.5 percent.