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Office Depot, Inc. Announces Third Quarter 2015 Results

The following excerpt is from the company's SEC filing.

Continues to Deliver Improvement in Operating Income

North American Retail Division Same-Store Sales Grow 3%

Boca Raton, Fla., November 3, 2015

Office Depot, Inc. (Office Depot, or the company) (NASDAQ: ODP), a leading global provider of office products, services, and solutions, which entered into a definitive agreement on February 4, 2015 to be acquired by Staples, Inc. (Staples), today announced results for the third quarter ended September 26, 2015.

We delivered strong operating results in the third quarter, despite the continued disruption related to the pending acquisit ion by Staples, said Roland Smith, chairman and chief executive officer of Office Depot. Compared to the prior year period, third quarter adjusted operating income increased almost 30% driven by North American Retail same-store sales growth of 3%, and substantial synergies and efficiencies generated from the integration of Office Depot/OfficeMax and our European restructuring. Planned store closures and foreign currency translation continue to be the primary causes of lower total company sales versus last year.

Smith added, We are working with the regulatory agencies to clear the pending acquisition by Staples, and expect to close the transaction in late 2015 or early 2016.

Consolidated Results

Reported (GAAP) Results

Total reported sales for the third quarter of 2015 were $3.7 billion compared to $4.1 billion in the third quarter of 2014, a decrease of 9%.

In the third quarter of 2015, Office Depot reported operating income of $51 million and net income attributable to Office Depot, Inc. was $6 million, or $0.01 income per share. In the third quarter of 2014, reported operating income was $49 million and net income attributable to Office Depot, Inc. was $29 million, or $0.05 income per share.

Adjusted (non-GAAP) Results

Total adjusted sales in the third quarter of 2015 declined 2% compared to the prior year period, excluding the impact of U.S. retail store closures, foreign currency translation, and sales from the companys interest in the Grupo OfficeMax joint venture which was sold in August 2014.

Adjusted operating income for the third quarter of 2015 was $163 million compared to $126 million in the third quarter of 2014. Adjusted net income attributable to Office Depot, Inc. for the third quarter of 2015 was $87 million, or $0.16 earnings per share, compared to adjusted net income of $52 million, or $0.10 income per share, in the third quarter of 2014.

Adjusted operating income for the third quarter of 2015 excludes special charges and credits totaling $112 million, which were comprised of $84 million in expenses related to the Office Depot/OfficeMax merger and the pending acquisition by Staples, $27 million in International restructuring charges, and $1 million in non-cash store impairment charges.

Adjusted net income for the third quarter of 2015 excludes the after-tax impact of these items.

(in millions, except per share amounts)

Selected GAAP measures:

11,007

12,263

Sales decline from prior year period

Gross profit

Gross profit margin

Operating income (loss)

Net income (loss) attributable to Office Depot, Inc.

Net earnings (loss) per share

Selected Non-GAAP measures:

Adjusted sales decline from prior year period excluding Grupo OfficeMax JV sales, foreign currency translation, and impact from U.S store closures

Adjusted gross profit

Adjusted gross profit margin

Adjusted operating income margin

Adjusted net earnings per share

Adjusted results include non-GAAP measures and exclude charges or credits not indicative of our core operations and the after-tax impact of these items, which may include but not be limited to merger integration and acquisition-related expenses, restructuring charges, significant legal accruals, and asset impairments. 2014 adjusted results also exclude results from the Grupo OfficeMax consolidated joint venture for comparability, as the Office Depot interest in the joint venture was sold in August 2014. Additionally, the adjusted rate of sales decline for the consolidated company excludes 2014 sales from the companys interest in the Grupo OfficeMax joint venture, the impact from foreign currency translation, and U.S retail store closures. Reconciliations from GAAP to non-GAAP financial measures can be found in this release as well as on our Investor Relations website at investor.officedepot.com.

Divisional Results

North American Retail Division

Retail Division sales were $1.6 billion in the third quarter of 2015, a decline of 7% compared to the prior year period, primarily due to planned store closures in the twelve months through September 26, 2015. Same-store sales increased 3%, driven largely by transferred sales from closed stores and increased operational effectiveness, including a strong back-to-school season program.

(in millions)

Same-store sales increase from prior year

Division operating income

Division operating income margin

Retail Division operating income was $120 million, or 7.5% of sales, in the third quarter of 2015 compared to $79 million, or 4.6% of sales, in the third quarter of 2014. The improvement from the prior year quarter resulted largely from a decrease in occupancy costs driven by store closures, a decrease in selling, general and administrative expenses including advertising and payroll, as well as favorable legal settlements and an improvement in the gross margin rate.

Office Depot ended the third quarter of 2015 with a total of 1,620 retail stores in the North American Retail Division. During the quarter, the company closed 6 stores.

North American Business Solutions Division

Business Solutions Division sales were $1.4 billion in the third quarter of 2015, a decline of 6% compared to the prior year period. Sales declined 5% in constant currency, and were lower in both the contract and direct channels. The sales decline was primarily due to the scheduled transition out of a legacy OfficeMax buying arrangement, lower sales in Canada, disruption related to the pending acquisition by Staples, and lower customer order fill rates attributable to merger integration activities. Customer attrition from the decommissioning of our legacy OfficeMax ecommerce sites and the continued reduction in catalog sales through our call centers, also contributed to the decline in sales.

Sales decline in constant currency from prior year

Business Solutions Division operating income was $66 million, or 4.6% of sales, in the third quarter of 2015 compared to $67 million, or 4.4% of sales, in the third quarter of 2014. The decrease in operating income compared to the prior year quarter reflected the negative flow-through impact of lower sales; partially offset by lower selling, general and...


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