Office Depot Shuts Stores, Takes Charge

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DELRAY BEACH, FLA. -In an effort to restore satisfactory rates of growth and its profitability companywide, Office Depot is taking a charge to earnings in its 2000 fiscal fourth quarter of $280 million to $300 million before taxes.

The charge is tied primarily to the closing of 67 underperforming U.S. stores and three in Canada. With these closings, Office Depot will be vacating the Boston, Phoenix, and Cleveland and Columbus, Ohio markets.

At the same time, the company announced it would be spending more than $110 million incrementally in 2001 to substantially improve the customer experience in its stores, as well as all of its other sales channels.

Based on sales results in December, the retailer said it expects to report fourth-quarter comp-store sales in the negative 5 percent range. It anticipates full-year 2000 earnings before charges of $280 million to $300 million. Actual fiscal fourth-quarter and full-year results will be announced Feb. 15.

Due to uncertain economic conditions for 2001 and the results of closing 70 stores, Office Depot now anticipates total company revenue growth will be in the mid-single-digit range for 2001. As a result of aggressive steps to increase profitability, it expects earning per share to climb 15 percent this year, compared with anticipated 2000 EPS numbers before charges.

In 2001, Office Depot plans to add about 50 new stores, most of which will be located in areas where the retailer currently enjoys strong market positions.

It also anticipates that e-commerce will continue to outpace other aspects of its business in terms of rates of growth. For 2000, worldwide e-commerce is expected to account for nearly $1 billion of total revenue, and at a profit. By 2003, total global e-commerce is expected to deliver sales in the $2.5 billion range.

"We see it [e-commerce] as a tool for implementing positive change in the customer experience in our retail stores," said CEO Bruce Nelson. "Increasingly, we are seeing that bricks & clicks retailers will be the real success stories in the e-commerce sector."

The retailer also plans to reduce in-store SKUs by about 20 percent and warehouse SKUs by about 30 percent. This change, expected to be complete by the end of the first quarter, is intended to reduce complexity in warehouses and return the focus in stores to the core business customer. Results should be better service levels as well as in-stock positions for best-selling products, the retailer said.

In other actions this year, Office Depot said it will relocate warehouses in Atlanta and Baltimore, and invest in new warehouse technologies to improve operations.

The chain plans to write down the value of its investment in a number of privately held Internet companies by about $45 million before taxes. It will also write off $12 million before taxes of good will related to an acquisition of the remaining 50 percent ownership of its former joint venture partner in Japan.

Office Depot said it would incur operating expenses of about $50 million and capital expenditures of about $60 million this year to implement strategic initiatives in seeking growth and profitability.

"In order to return our focus to our core business customers, foster a winning culture among our employees, and restore credibility with the capital markets, we had to make significant and sometimes difficult decisions," said Nelson. "We see enormous potential for our business to grow and prosper in 2001 and beyond."

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