Office Depot Q2 N.A. Retail Segment Sales Rise 5%

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Delray Beach, Fla. — Office Depot said second quarter sales in this segment increased 5 percent, hitting $1.34 billion, up from $1.28 billion in the year-ago period, despite a drop in momentum in its North American retail division in June and July.

Segment comp store sales in the United States and Canada rose 3 percent, primarily due to increased sales of technology products and as a direct result of merchandising initiatives launched in the fourth quarter of 2003.

Operating profit in the North American retail segment jumped 54 percent in the second three months, ended June 26, reaching $71.3 million, up from $46.4 million in the same quarter a year ago.

By reducing shrink and occupancy costs, Office Depot increased gross margin as a percentage of sales in its North American retail division, to 25.4 percent, compared with a year-over-year 24.7 percent. There was some offset from increased sales of lower margin technology products, said the company.

Gross margin in core office supplies and furniture categories increased on a year-over-year basis, while store and warehouse expenses declined as a percentage of sales.

Office Depot, which anticipates continued positive comps in its North American retail segment throughout the remainder of 2004, said future retail growth will be driven by the rollout of its new Millennium 2 (M2) store format, both for remodels and new stores.

North American retail sales are expected to grow in the high single digit to low teens range in the second half, and the retailer believes its current portfolio of merchandising and cost reduction initiatives will grow North American retail profit in the low to mid-teens percentage range for the same time frame.

First half sales in the North American retail segment climbed to $2.9 billion from $2.8 billion, compared with the first six months in 2003, while segment operating profit increased to $183.6 million, from $164.6 million, in the same comparative periods.

Consolidated Office Depot sales jumped 12 percent in the second quarter, reaching $3.2 billion, up from $2.8 billion a year earlier. Net profit climbed to $79.9 million in the second quarter, up from $59.6 million year-on-year. Due mainly to continued improvement in North American retail performance, consolidated operating profit hit $120 million in the second quarter, a 47 percent rise over the $81.7 million reported in the same three months a year ago.

For the six months, consolidated sales grew by 15 percent to $6.8 billion from $5.9 billion, with net income rose to $195.4 million from $138.8 million for the same comparative periods. Six month consolidated operating profit increased 22 percent to $295.3 million from $243.1 million year-over-year.

As previously reported Office Depot said it has begun its retail expansion in the northeastern United States. It will open about 80 new M2 format stores in the next five months and complete about 40 M2 remodels of older stores before the end of the year.

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