QUOTE AND NEWS
SeekingAlpha  Aug 15  Comment 
By Anthony Ruben: Six months ago, while screening for attractive high yielding, highly rated stocks, I came across Staples (NASDAQ:SPLS). Recently, SPLS has jumped over 5%, so I wanted to see if anything had changed. Upon further analysis, I...
DailyFinance  Aug 14  Comment 
Office Depot, Inc. (NYSE: ODP), a leading global provider of office products, services, and solutions formed by the merger of Office Depot and OfficeMax, today unveiled how parents and students approach back-to-school ...
SeekingAlpha  Aug 14  Comment 
By George Hanley: An investment in office supply giant Staples (NASDAQ: SPLS) has not been a winning move over the past year with the company's share price down more than 30%. Staples continues to be negatively impacted by lower customer traffic...
Wall Street Journal  Aug 6  Comment 
Office Depot's sales increased in the second quarter, partly due to benefits of the merger with OfficeMax, but expenses sent it to a wider loss.
SeekingAlpha  Aug 5  Comment 
Office Depot (NYSE:ODP) Q2 2014 Earnings Call August 05, 2014 9:00 am ET Executives Michael A. Steele - Vice President of Investor Relations Roland C. Smith - Chairman and Chief Executive Officer Stephen E. Hare - Chief Financial...
TheStreet.com  Aug 5  Comment 
NEW YORK (TheStreet) -- Office Depot was gaining 0.4% to $5.13 tuesday after meeting analysts' estimates for earnings and revenue in the second quarter. The retailer reported a loss of -2 cents a share for the second quarter, meeting analysts'...
Market Intelligence Center  Aug 5  Comment 
Headlines for Tuesday morning include earnings from CVS, Toyota Motors and Office Depot, Blackberry finishing its restructuring plan and Walgreen's CFO leaving before the company decides on a possible tax inversion. CVS Drugstore chain CVS (CVS)...
Wall Street Journal  Aug 5  Comment 
Office Depot's sales increased in the second quarter, partly due to benefits of the merger with OfficeMax, but expenses sent it to a wider loss.
Forbes  Aug 1  Comment 
Office Depot is expected to book a narrower loss than a year ago when it reports second-quarter earnings on Tuesday, August 5, 2014. Analysts are expecting a loss of two cents per share, up from a loss of 10 cents per share a year ago.The...
Motley Fool  Jul 24  Comment 
Office-supply retailer Staples has not been the place to invest in 2014, with its share price down sharply. However, with a below-market P/E multiple, is it time to buy in?




 

Office Depot (NYSE: ODP) is one of the largest office suppliers in the United States, with over $12.1 billion in office products sold in 2009.[1] Combined with Staples (SPLS) and Officemax (OMX), these three companies supply approximately 10% of the world's office supplies.

Office Depot has made efforts to increase its profitability by offering copy and print services, which enjoy margins twice as high as its other offerings. The company has integrated copy and print services into retail and commercial businesses, going so far as to extensively renovate its retail stores with copy centers prominently featured in the front. In addition, Office Depot built a network of 12 regional centers for large commercial clients.

A second initiative to increase profitability involves direct sourcing, whereby retailers purchase goods directly from suppliers and cut out any middlemen. Direct sourcing allows companies such as Office Depot to offer its own line of private label goods, which typically see higher margins than branded goods. Office Depot and Staples are very competitive in this regard, with about one-fifth of all goods sold coming from respective private labels.

Company Overview

In 2009, Office Depot's total revenues were $12.1 billion, a 16% decline from its 2008 revenue.[2] The company attributed this decline to the tough economic conditions in the United States for 2009. As a result, Office Depot posted a net loss of $599 million in 2009, compared to its net loss of $1.48 billion in 2008.

Business Segments

Office Depot breaks its business into three reportable segments: i) North American Retail, ii) North American Business Solutions, and iii) International.

North American Retail

Office Depot's retail stores in North America sell office supplies, computers and software, office furniture and other business-related products. Many of Office Depot's retail stores also have copy centers which design, print and ship various materials such as training manuals, newsletters and marketing materials. Retail stores mostly serve consumers and small businesses. For 2009, Office Depot's North American Retail segment had total sales of $5.1 billion and posted an operating profit of $105.5 million.[2]

North American Business Solutions

In addition to operating retail stores throughout North America, Office Depot also provides office supplies directly to medium and large sized businesses. Office Depot serves these businesses via field sales agents, catalogs, and Office Depot's website. In 2009, North American Business Solutions sales were $3.48 billion, with an operating income of $98 million.[3]

International

Office Depot operates retail stores in foreign countries and sells directly to businesses on an international level. In the international retail segment, Office Depot operates a mix of company owned stores, joint ventures, franchised stores and other retailing arrangements. In the international business solutions segment, Office Depot sells office supplies to business through catalogs, websites and field sales agents. For the year ended 2009, Office Depot's International segment had total sales of $3.5 billion and an operating income of $120 million.[4]

Trends and Forces

Direct Sourcing

Office Depot currently directly sources approximately 5% of its merchandise, including both brand name and private-label goods. Direct sourcing is a method that wholesale retailers have been adopting more readily across the retail industry, whereby retailers purchase goods directly from manufacturers rather than through a transferring agent or "middleman".

Direct sourcing creates considerably higher margins for retailers such as Office Depot by eliminating "middleman" costs. It is estimated that for every 1% increase in sales that is directly sourced, Office Depot would see a 0.1% increase in operating margins.

Copy Centers

Most North American retail outlets have copy centers that provide designing and printing services to consumers and businesses. The overall copy center market is estimated at about $20 billion annually, and the industry is broken up among several key constituents:

  • Small local and regional companies accounting for approximately 75% of the market by revenue
  • The major office supply retailers (Staples, Office Depot and OfficeMax) comprise about 11% of the market combined
  • FedEx (FDX) subsidiary Kinko's owns the leading share of the market at 14% of revenues

In this highly divided market, there is room for Office Depot to take away market share not only from its main competitors, Staples and OfficeMax, but the copy center leader, FedEx Kinko's. In addition to copy centers based in retail stores, Office Depot has 12 regional production facilities that provide the same services for large-scale orders.

Current estimates for the operating margin of Office Depot's design, print and ship services are approximately 17%, ranking it as one of Office Depot's most profitable offerings. Office Depot has leveraged this profit center by renovating retail stores to make copy centers more visible to customers near the front of the store.

International Advantage

Despite being second to Staples in total sales and profits, Office Depot had greater total sales and a higher operating margin in the international segment than leading competitor Staples. Part of this advantage comes from Office Depot's split of retail and business solution sales in the international division. Office Depot is pressing their advantage at operating business solution sales in the international segment by acquiring contract office suppliers across the globe in profitable markets such as Asia and South America.

Competition

Office Depot, combined with Staples (SPLS) and Officemax (OMX), are the market leaders in the office supply industry. However, together they account for about only 10% of the estimated $300 billion market. The rest of the market is divided widely between supermarkets, wholesale retailers, discount stores (including Wal-Mart) and smaller independent companies.

One clear advantage Office Depot holds over Staples is in the international market, where Office Depot is clearly ahead in terms of sales and operating margins. This lead in the international regions may also help buffer Office Depot's business in the case of an economic downturn in North America.



References

  1. ODP 10-K 2009 Item 1 Pg. 1
  2. 2.0 2.1 ODP 10-K 2009 Item 7 Pg. 24
  3. ODP 10-K 2009 Item 7 Pg. 25
  4. ODP 10-K 2009 Item 7 Pg. 26
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