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Office Depot Narrows Losses, Confirms Store Closings

Boca Raton, Fla. – Office Depot reported a $12 million loss in the second quarter, compared with a combined $18 million loss last year by Office Depot and OfficeMax, which merged in November.

Sales at the No. 2 office-supply chain slipped 2 percent, to $3.9 billion, for the three months, ended June 28, compared with the prior year’s combined pro forma sales.

Within the North American retail division, sales dipped 5 percent, to $1.5 billion; comp sales declined 3 percent; and operating loss narrowed from $6 million to $22 million year over year thanks to lower expenses and higher gross margins.

Following an analysis of its U.S. real estate portfolio, the company has decided to shut at least 400 U.S. stores by the end of 2016, including about 165 that will be closed by the fourth quarter of this year. The chain currently operates over 2,000 stores worldwide.

Office Depot expects to save about $100 million a year from the closures, and more than $700 million annually by the end of 2016 as a result of total synergies realized from the merger.

In a statement, chairman/CEO Roland Smith said the management team has “executed exceptionally well” in integrating the two legacy chains and delivering merger synergies more quickly than anticipated.

Looking ahead, the company raised its projected 2014 operating income from no less than $160 million, to no less than $200 million, prompting Janney retail analyst David Strasser laud it for its ability “to execute and find synergy opportunities.”

“The office products industry has issues, we know that,” Strasser observed in a research note. “But it is becoming clear that Office Depot is under competent leadership. Office Depot may not have the top line figured out, but as this quarter demonstrates, the company is making substantial progress integrating OfficeMax into the fold.”