From: Reuters
Published December 12, 2007 11:18 AM

Office Depot sees further erosion of sales, profit

By Justin Grant

NEW YORK (Reuters) - Office Depot Inc <ODP.N> said on Wednesday it expects fourth quarter sales and earnings to fall further as housing-related struggles spread into more of its markets, sending shares to its lowest level since 2004.

Office Depot, the No. 2 office supplies retailer behind Staples Inc <SPLS.O>, had previously given a conservative forecast for the holiday season and said sales would remain challenging early in 2008.

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


Despite the macro-economic environment for office supply chains, FTN Midwest Securities analyst Anthony Chukumba said Office Depot's issues are more company-specific.

"They're under-investing in their retail store base. They have some problems in their contract business," he said, adding that rival Staples made no mention of housing-related difficulties in its recent guidance.

Sanford Bernstein analyst Colin McGranahan said Office Depot's timing in releasing this news is "curious" considering it reported its third-quarter results just three weeks ago.

"Weak fourth-quarter results were already expected, though today's news could place incremental pressure on the stock as uncertainty rises," said McGranahan, who has an "outperform" rating on Office Depot's shares.

Office Depot's third-quarter earnings were boosted by a tax benefit, but the company said on Wednesday its fourth-quarter results would receive no such boost.

Analysts' average earnings forecast is 33 cents a share for the fourth quarter, according to Reuters Estimates.

Office Depot expects vendor program support levels in the fourth quarter to be down about $70 million from a year earlier.

Under the vendor program, Office Depot said it enters purchase deals with certain vendors enabling them to pay the company when certain conditions are met.

Shares of Office Depot were trading down about 7.1 percent to $15.78 in morning trading on the New York Stock Exchange.

(Reporting by Justin Grant; editing by Derek Caney)

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