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Office Depot Q2 Sales Decrease 1%

Delray Beach, Fla. – Improving sales of paper and machine supplies, offset by softness in computers and monitors and furniture, turned into a 1 percent second quarter sales decline for the North American retail segment at Office Depot.

Sales hit $1.28 billion for the three months, down from $1.29 billion in the year-ago period. Comp-store sales dropped 3 percent in the second quarter.

Sales of computers and monitors showed an almost 30 percent unit increase in the second quarter, ended June 28, but this rise came at the expense of lower price points than the comparable three months in 2002, as price deflation continued in the technology segment.

Second quarter customer transactions at the office supplies retailer increased by more than 2 percent over the same time period last year.

North American segment operating profit dropped 51 percent to $46.4 million in the second quarter, down from $94 million in the same quarter a year earlier. The company blamed operating costs required to implement its merchandising initiatives, as well as lower margins from clearance activity and some de-leveraging of occupancy expense for the drop-off.

Sales for the first half in the retailer’s North American segment hit $2.8 billion, down form $2.9 billion year-on-year. Comp-store sales dropped 5 percent in the first six months, as did operating profit, which came in at $164.6 million, compared with $217.6 million in the first half of 2002.

In the second half, Office Depot said North American retail segment gross margin will rebound to more comparable levels of 2002.

Consolidated Office Depot sales increased 7 percent in the second quarter, hitting $2.8 billion, up from $2.6 billion in the second quarter last year. Comp-store sales worldwide declined 1 percent.

Consolidated net income reached $59.6 million, up from $56.9 million in the same quarter in 2002. Operating income decreased by 11 percent in the period, to $81.7 million, compared with $92.2 million year over year, primarily due to unfavorable gross margin comparisons in North American retail stores.

For the six months, consolidated sales grew 4 percent, reaching $5.9 billion, up from $5.6 billion in the first half of last year. Worldwide comp-store sales declined 2 percent in the six months.

Operating profit for the six months dropped 5 percent, to $243.1 million, down from $355.7 million. Net profit came in at $138.8 million for the first half, compared with $159.7 million year-on-year.

Improving trends in North American retail will help Office Depot attain slightly positive third quarter comp-store sales, while the fourth quarter should come in at the low single digit positive range, said t1he retailer.