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Office Depot Narrows Q4 Loss

Boca Raton, Fla. — Office Depot trimmed its losses during its fiscal fourth quarter.

The No. 2 office-supply chain reported an $84 million loss for the period ending Dec. 27, 2014, compared with a prior-year net loss of $144 million, while net sales slipped 6 percent to $3.8 billion.

The figures reflect the combined results of Office Depot and OfficeMax, which merged in November 2013.

Within the North American retail segment, fourth-quarter sales declined 7 percent to $1.5 billion, reflecting store closures, while comp-store sales decreased 2 percent and operating income was $16 million, compared with a prior-year loss of $23 million.

The company attributed the increase in operating income to store closings, lower payroll and advertising costs, and a higher gross margin rate, which were partially offset by the impact of lower sales.

The company, which will be acquired at year’s end by Staples pending regulatory approval, ended the quarter with 1,745 North American stores after closing 108 and opening two.

For the full fiscal year, sales declined 6 percent at North American retail stores to $6.5 billion, comps decreased 3 percent, and operating income increased to $126 million from $21 million the year prior.

The company attributed the comp declines to lower traffic and smaller average purchases, reflecting lower selling prices on computer products and declines in sales of tech products, ink, toner and paper, although gross margins rose by employing narrower,  more targeted promotions.

In a statement, Office Depot chairman/CEO Roland Smith described the pending purchase as “an endorsement of the tremendous success we’ve had integrating Office Depot and OfficeMax over the past year.” The integration will so far achieve over $500 million in annual savings, he said, and the company will continue to focus on driving continued synergies and efficiencies while improving the customer experience.

But Janney retail analyst David Strasser said in a research note that the key challenge for the remainder of the year will be retaining talented employees amid post-merger job uncertainty.

Looking ahead, IBISWorld analyst Will McKitterick questioned whether even a combined Staples/OfficeDepot/OfficeMax can salvage the challenged office supply channel. “Any merger, even of two currently dominant companies such as Staples and Office Depot, is unlikely to stem the onslaught of competition coming from e-commerce and big-box competitors such as Amazon, Walmart, Target and others,” he observed.