{"id":11368,"date":"2016-04-26T18:16:31","date_gmt":"2016-04-26T18:16:31","guid":{"rendered":"http:\/\/network.napco.com\/print-and-promo\/?post_type=article&#038;p=11368"},"modified":"2016-04-26T20:32:19","modified_gmt":"2016-04-26T20:32:19","slug":"office-depot-inc-cites-staples-inc-tie-up-for-q1-2016-financial-decline","status":"publish","type":"article","link":"https:\/\/network.napco.com\/print-and-promo\/article\/office-depot-inc-cites-staples-inc-tie-up-for-q1-2016-financial-decline\/","title":{"rendered":"Office Depot Inc. Cites Staples Inc. Tie-up for Q1 2016 Financial Decline"},"content":{"rendered":"<p><a href=\"http:\/\/network.napco.com\/print-and-promo\/wp-content\/uploads\/sites\/11\/2016\/04\/odp_max_logo_transparent.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignright wp-image-11369 size-full\" src=\"http:\/\/network.napco.com\/print-and-promo\/wp-content\/uploads\/sites\/11\/2016\/04\/odp_max_logo_transparent.png\" alt=\"odp_max_logo_transparent\" width=\"185\" height=\"64\" \/><\/a><a href=\"http:\/\/www.officedepot.com\/\" target=\"_blank\">Office Depot Inc.<\/a>, a leading global provider of\u00a0office products, services and solutions, which entered into a definitive agreement on\u00a0Feb. 4, 2015\u00a0to be <a href=\"http:\/\/www.goprintandpromo.com\/article\/no-ruling-reached-in-staples-inc-office-depot-inc-merger-hearing\/\" target=\"_blank\">acquired by\u00a0Staples Inc.<\/a>, announced results for the first quarter ended\u00a0March 26, 2016.<\/p>\n<p>&#8220;The protracted regulatory review of the pending\u00a0Staples\u00a0acquisition continues to have a substantial disruptive impact on our business,&#8221; said\u00a0Roland Smith, chairman and CEO for\u00a0Office Depot. &#8220;Our North American Business Solutions Division and International Division are more impacted by this disruption and accordingly, both failed to meet our sales and profit expectations this quarter. In spite of the uncertainty surrounding the acquisition, our associates around the world continue to demonstrate focus, drive and dedication as we finalize this process.<\/p>\n<p>&#8220;Regarding the pending\u00a0Staples\u00a0acquisition, we expect U.S. federal district court Judge Sullivan to render his decision by\u00a0May 10, 2016,&#8221; Smith added. &#8220;We continue to believe that this transaction provides substantial benefits to our shareholders and all our customers.&#8221;<\/p>\n<p><strong>Consolidated Results<\/strong><br \/>\nTotal reported sales for the first quarter of 2016 were\u00a0$3.5 billion\u00a0compared to\u00a0$3.9 billion\u00a0in the first quarter of 2015, a decrease of 9 percent.<\/p>\n<p>In the first quarter of 2016,\u00a0Office Depot\u00a0reported operating income of\u00a0$71 million\u00a0and net income was $46 million, or\u00a0$0.08\u00a0per share. In the first quarter of 2015, the reported operating income was\u00a0$88 million and net income was\u00a0$45 million, or\u00a0$0.08\u00a0per share.<\/p>\n<p><strong>Adjusted (non-GAAP) Results<br \/>\n<\/strong>Adjusted operating income\u00a0for the first quarter of 2016 was\u00a0$115 million\u00a0compared to an adjusted operating income of\u00a0$135 million\u00a0in the first quarter of 2015. Adjusted net income for the first quarter of 2016 was\u00a0$57 million, or\u00a0$0.10\u00a0per share, compared to adjusted net income of\u00a0$71 million, or\u00a0$0.13\u00a0per share, in the first quarter of 2015.<\/p>\n<ul>\n<li>Adjusted operating income for the first quarter of 2016 excludes special charges and credits totaling\u00a0$44 million, which consisted of\u00a0$39 million\u00a0in expenses related to the\u00a0Office Depot\/OfficeMax merger and the pending acquisition by\u00a0Staples, and\u00a0$5 million\u00a0in restructuring activities.<\/li>\n<li>Adjusted net income for the first quarter of 2016 excludes the after-tax impact of these items.<\/li>\n<\/ul>\n<p><strong>Divisional Results<br \/>\n<\/strong><em>North American Retail Division<\/em><br \/>\nRetail Division sales were\u00a0$1.5 billion\u00a0in the first quarter of 2016, compared to\u00a0$1.7 billion\u00a0in the prior year period. First quarter sales declined 9 percent, primarily due to the impact of planned store closures in the fiscal 12 months through\u00a0March 26, 2016. Same-store sales in the quarter declined 1 percent primarily due to lower transactions. Same-store sales benefited from the positive impact of transferred sales from closed stores and increased operational effectiveness.<\/p>\n<p>Retail Division operating income was\u00a0$102 million, or 6.8 percent of sales, in the first quarter of 2016 compared to\u00a0$86 million, or 5.2 percent of sales, in the first quarter of 2015. The improvement from the prior year quarter resulted largely from a higher gross margin rate and a decrease in occupancy costs driven by store closures, as well as a decrease in selling, general and administrative expenses including payroll and advertising.<\/p>\n<p>Office Depot\u00a0ended the first quarter of 2016 with a total of 1,555 retail stores in the North American Retail Division. During the quarter, the company closed nine stores.<\/p>\n<p><em>North American Business Solutions Division<\/em><br \/>\nBusiness Solutions Division sales were\u00a0$1.4 billion\u00a0in the first quarter of 2016, a decline of 7 percent compared to the prior year period. Sales also declined 7 percent in constant currency, and were lower in both the contract and direct channels. The contract channel sales decline was driven by customer attrition and lower customer additions, primarily due to the substantial business disruption related to the pending acquisition by\u00a0Staples. In the direct channel, decommissioning its legacy OfficeMax e-commerce sites and the ongoing reduction in catalog sales through its call centers also contributed to the decline in sales.<\/p>\n<p>Business Solutions Division operating income was\u00a0$46 million, or 3.4 percent of sales, in the first quarter of 2016 compared to\u00a0$58 million, or 3.9 percent of sales, in the first quarter of 2015. The decrease in operating income compared to the prior year quarter reflected the negative flow-through impact of lower sales, partially offset by a higher gross margin rate and lower selling, general and administrative expenses including payroll and advertising.<\/p>\n<p><em>International Division<\/em><br \/>\nInternational Division sales were\u00a0$0.7 billion\u00a0in the first quarter of 2016, a decline of 10 percent compared to the prior year period, reflecting the negative impact of foreign currency translation. International sales declined 6 percent in constant currency primarily due to the continued disruption from Staples&#8217; pending acquisition of\u00a0Office Depot\u00a0and the related required European divestiture process, the European restructuring, as well as ongoing competitive market pressures and reduced spend from existing customers.<\/p>\n<p>The International Division operating loss was\u00a0$10 million, or 1.4 percent of sales, in the first quarter of 2016 compared to operating income of\u00a0$14 million, or 1.9 percent of sales, in the first quarter of 2015. The decline from the prior year quarter primarily reflected the negative flow-through impact of lower sales and a lower gross margin rate, partially offset by lower selling, general and administrative expenses including payroll and advertising and support costs.<\/p>\n<p>At the end of the first quarter of 2016, there were a total of 274 retail stores in the International Division, including 149 company-owned stores and 125 stores operated by franchisees and licensees.<\/p>\n<p><strong>Corporate Results<\/strong><br \/>\nCorporate includes support staff services and certain other expenses that are not allocated to the three divisions. Unallocated operating costs were\u00a0$23 million\u00a0in the first quarter of 2016 compared to\u00a0$22 million\u00a0in the first quarter of 2015.<\/p>\n<p><strong>Acquisition by\u00a0Staples<\/strong><br \/>\nOn\u00a0Feb. 4, 2015,\u00a0Office Depot\u00a0and\u00a0Staples\u00a0announced that the companies entered into a definitive agreement under which\u00a0Staples\u00a0will acquire all of the outstanding shares of\u00a0Office Depot. Under the terms of the agreement,\u00a0Office Depot\u00a0shareholders will receive, for each\u00a0Office Depot\u00a0share,\u00a0$7.25\u00a0in cash and 0.2188 of a share in\u00a0Staples\u00a0stock at closing. The transaction has been approved by both companies&#8217; board of directors and\u00a0Office Depot\u00a0stockholders. The proposed transaction received antitrust clearance from the regulators in\u00a0Australia,\u00a0New Zealand\u00a0and\u00a0China.<\/p>\n<p><!--nextpage-->On Dec.\u00a07, 2015, the\u00a0United States Federal Trade Commission\u00a0(FTC) informed\u00a0Office Depot and\u00a0Staples\u00a0that it intended to block the Staples Acquisition and file a request for a preliminary injunction. On the same date,\u00a0Office Depot\u00a0and\u00a0Staples\u00a0announced their intent to contest the FTC&#8217;s decision to block the transaction. Also on\u00a0Dec. 7, 2015, the\u00a0Canadian Competition Bureau\u00a0filed an application to block the transaction with the\u00a0Canadian Competition Tribunal. On\u00a0Feb. 2, 2016, the company and\u00a0Staples\u00a0announced that they entered into a letter agreement to waive, until May\u00a016, 2016, certain of their respective rights to terminate the Staples Merger Agreement.<\/p>\n<p>On\u00a0Feb. 10, 2016, the\u00a0European Commission\u00a0approved the transaction subject to certain divestiture requirements.<\/p>\n<p>A hearing on the FTC&#8217;s preliminary injunction of the transaction was held in federal district court in March and\u00a0April 2016. A decision is expected by\u00a0May 10, 2016.<\/p>\n<p><strong>Outlook<\/strong><br \/>\nOffice Depot\u00a0continues to expect total company sales in 2016 to be lower than 2015, primarily due to the impact of store closures, the ongoing business disruption from the protracted regulatory approval process related to the pending acquisition by\u00a0Staples, and continued challenging market conditions in our industry. The company expects this disruption to continue through at least the first half of 2016, while the company completes the ongoing litigation with the FTC and the additional requirements of the European and Canadian competition authorities.<\/p>\n<p>Office Depot\u00a0closed nine stores in the first quarter of 2016 as part of its previously announced U.S. retail store optimization plan. The company continues to expect to close more than 50 stores during 2016 for a total of at least 400 closures under this plan.<\/p>\n<p>The company continues to expect incremental integration synergies, restructuring benefits and operating efficiencies to offset the negative flow-through impact of lower sales in 2016. As a result,\u00a0Office Depot expects to generate approximately\u00a0$500 million\u00a0in adjusted operating income\u00a0in fiscal 2016, with the year-over-year improvement occurring in the second half of the year.<\/p>\n<p>Office Depot\u00a0continues to expect total annual run-rate merger synergy benefits of more than\u00a0$750 million from the OfficeMax integration and expects the integration to be substantially complete by the end of 2017.<\/p>\n<p>The company expects to incur approximately\u00a0$100 million\u00a0of merger integration expenses over the remaining 2016-2017 period, and estimates it will incur approximately\u00a0$30 million\u00a0of expenses in 2016 related to the pending acquisition by\u00a0Staples.<\/p>\n<p>In 2016, capital expenditures are expected to be approximately\u00a0$250 million, including investments that support critical priorities and approximately\u00a0$50 million\u00a0related to merger integration. Depreciation and amortization is expected to be approximately\u00a0$225 million\u00a0in 2016.<\/p>\n<p><a href=\"http:\/\/investor.officedepot.com\/phoenix.zhtml?c=94746&amp;p=irol-newsArticle&amp;ID=2161325\" target=\"_blank\">Click here to view the complete report.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Office Depot Inc., a leading global provider of office products, services and solutions, which entered into a definitive agreement on Feb. 4, 2015 to be acquired by Staples Inc., announced results for the first quarter ended March 26, 2016. \u201cThe protracted regulatory review of the pending Staples&#8230;<\/p>\n","protected":false},"author":123,"featured_media":0,"comment_status":"open","ping_status":"closed","template":"","coauthors":[29487],"class_list":["post-11368","article","type-article","status-publish","hentry","category-marketing-and-sales","category-mergers-acquisitions","category-printer-news","tag-disruptive-impact","tag-q1-2016-financial-results","tag-staples-office-depot-merger","person-roland-smith","collection-the-latest","collection-todays-top-stories"],"_links":{"self":[{"href":"https:\/\/network.napco.com\/print-and-promo\/wp-json\/wp\/v2\/article\/11368","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/network.napco.com\/print-and-promo\/wp-json\/wp\/v2\/article"}],"about":[{"href":"https:\/\/network.napco.com\/print-and-promo\/wp-json\/wp\/v2\/types\/article"}],"author":[{"embeddable":true,"href":"https:\/\/network.napco.com\/print-and-promo\/wp-json\/wp\/v2\/users\/123"}],"replies":[{"embeddable":true,"href":"https:\/\/network.napco.com\/print-and-promo\/wp-json\/wp\/v2\/comments?post=11368"}],"wp:attachment":[{"href":"https:\/\/network.napco.com\/print-and-promo\/wp-json\/wp\/v2\/media?parent=11368"}],"wp:term":[{"taxonomy":"author","embeddable":true,"href":"https:\/\/network.napco.com\/print-and-promo\/wp-json\/wp\/v2\/coauthors?post=11368"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}