From: Reuters
Published February 26, 2008 11:20 AM

Office Depot profit falls sharply, expenses climb

NEW YORK (Reuters) - Office Depot Inc <ODP.N>, the second-largest U.S. office supplies retailer, posted a sharply lower quarterly profit on Tuesday, hurt by higher expenses and lower sales in North America.

Fourth-quarter profit fell to $18.8 million, or 7 cents a share, from $126.6 million, or 45 cents a share, a year ago.

Total quarterly sales edged up 1 percent to $3.9 billion.

On an adjusted basis, Office Depot said it earned 10 cents a share for the quarter.

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Analysts, on average, were expecting the company to earn 17 cents a share for the quarter on $3.8 billion in sales, according to Reuters Estimates.

Office Depot also said Chief Financial Officer Patricia McKay is leaving the company March 1. Charles Brown, president of its international segment, will become acting CFO.

The results come a week after rival OfficeMax Inc <OMX.N> said fourth-quarter sales fell 2.6 percent.

Sales at office supply chains have weakened in recent quarters as slowing job growth, the distressed U.S. housing sector and credit market jitters have led small businesses to cut spending.

But while the challenging environment could pressure Office Depot's results throughout the rest of the year, the company has the potential to drive improved margins in the long run, Sanford Bernstein analyst Colin McGranahan wrote in a February 25 research note.

"Despite the near-term headwinds ... we continue to see longer-term margin opportunities," he wrote.

"We estimate the stock is discounting operating margin well below its historical average and intrinsic potential," wrote McGranahan, who has an "outperform" rating on its shares.

(Reporting by Justin Grant; Editing by Steve Orlofsky)

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