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Office Depot Primed For Merger With Staples

Boca Raton, Fla. – Office Depot is getting all its ducks lined up in anticipation of its year-end $6.3 billion acquisition by Staples.

In its second-quarter earnings report, released this morning, the No. 2 office-supply chain said it narrowed its losses, posted positive comps for the first time in years, and remains on track with the integration of its 2013 merger with OfficeMax.

For the three months ended June 27, the company reported a net loss of $58 million, compared to a year-ago net loss of $189 million, due to “continued excellent execution on our merger integration, synergies and efficiencies, and positive same-store sales growth,” explained chairman/CEO Roland Smith.

Net sales declined 10 percent to $3.4 billion due to the planned closures of 99 U.S. stores and unfavorable currency fluctuations, Smith said. But “transferred sales from closed stores” and “increased operational effectiveness” drove a 1 percent increase in same-store sales in North America compared to a 1 percent decline last year.

The company plans to close another 175 U.S. stores this year and at least 60 more in 2016. It currently operates 1,626 locations on this continent and 267 stores overseas.

Broken out by division, North American retail sales declined 8 percent, while operating income was $42 million, compared to an operating loss of $6 million last year, due to savings in store rent, advertising and other brick-and-mortar expenses, and an improved gross margin rate.

Looking ahead, the chain is projecting lower sales for the full year due to the store closures, unfavorable exchange rates, business disruption from the pending Staples acquisition, and “continued challenging market conditions in the industry.”

The company expects annual cost savings of $750 million in 2016 from its merger with OfficeMax, up from over $500 million this year, but anticipates about $250 million in additional “merger integration expenses” and about $160 million in related capital spending this year and next.

It also expects the Staples acquisition to cost it $100 million in advisory fees and employee-retention expenses.

Smith said the purchase was “overwhelmingly approved” by Office Depot shareholders on June 19 and received clearance from regulatory agencies in China and New Zealand. The deal still awaits the O.K. from the U.S., the European Union, Canada and Australia, but the regulatory review process “remains on track,” he said, and the acquisition is expected to close by year’s end.