Office Depot Reports Higher Q1 Sales, Net

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Delray Beach, Fla. — Office Depot reported higher company-wide sales and increased sales in North America as well as higher profits for the first quarter ended March 31.

Total company sales for the first quarter grew 7 percent to $4.1 billion vs. the previous year’s opening quarter. Sales in North America were up 3 percent, but were depressed early in the quarter by the launch of the Microsoft Windows Vista operating system and the related lack of available PC inventory, and later in the quarter by a softening in spending by small business customers.

The chain’s net earnings for the quarter were $156 million, up from $130 million in the same quarter of the prior year.

“We are pleased that we have a business model that generates profitable growth even in a challenging quarter,” said Steve Odland, Office Depot’s chairman/CEO. “The strategic initiatives that we have implemented have led to sales growth in each of our divisions as well as lower operating expenses and expanded total company margins. This overall growth in sales and operating margin expansion was realized despite disruption in supply caused by the release of Microsoft Windows Vista at the end of January and a softening in small business spending during the quarter. Sales in the second quarter may be similarly affected if the current business conditions persist in North America. However, we will continue to manage our business to optimize profitable growth.”

First-quarter sales in the North American Retail Division grew by 3 percent to $1.8 billion, compared with the same period last year. Comparable store sales in the 1,042 stores in the United States and Canada that have been open for more than one year decreased 3 percent for the first quarter, due to the Vista problems and softer business spending as reported earlier.

The North American retail division had an operating profit of $155 million for the first quarter of 2007, up from $135 million in the same period of the prior year.

During the quarter, Office Depot continued to execute planned store expansions and remodels by opening 16 new stores and remodeling 80. These activities have a short-term negative impact on the Division’s results, “but represent an important part of the longer term profitable growth strategy,” the chain said. Operating profit margin improved 90 basis points to 8.4 percent in the quarter, from 7.5 percent in the prior year period, due to higher product margins and disciplined cost management, the chain reported.

At the end of the first quarter, Office Depot operated a total of 1,174 stores throughout the United States and Canada.

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