Office Depot Exits Canada - Analyst Blog
April 21 2011 - 1:05PM
Zacks
Office Depot Inc.
(ODP) recently announced that it will put up the shutters on its
nine existing stores in Canada on June 11. However, it will
continue to provide services to its customers through its Canadian
website, according to Business Journal.
The supplier of office products
entered the Canadian market in 1992 by acquiring the Great Canadian
Office Supplies Warehouse chain. Its exit will make around 180
Canadian workers jobless.
Office Depot claims that the move
was the part of the company’s initiative to enhance its growth
prospects by cutting down on investments in sections that no longer
contributes significantly to its long-term growth.
The company is repositioning itself
in this difficult consumer environment by containing costs, closing
underperforming stores, reducing exposure to higher dollar-value
inventory items, shuttering non-critical distribution facilities
and focusing on providing innovative products and services.
Furthermore, the company in order
to enhance its global footprint has made strategic acquisitions
over the past few years, and is still looking for accretive
opportunities. Office Depot is reviewing capital-efficient
opportunities to expand its reach in Eastern Europe, Asia and South
America. The company believes that India and China will provide
significant growth opportunities.
Office Depot has been actively
managing its cash flows. The company generated free cash flow of
$30.2 million during fiscal 2010, and projected free cash flow of
approximately $50 million for fiscal 2011. In addition, the
company’s strong liquidity driven by healthy cash balance,
positions it to drive future growth.
We also appreciate Office Depot’s
rational approach to slow the pace of store openings in North
America, given the weak consumer environment. The company opened 6
stores in fiscal year 2009, significantly down from 59 stores
opened in 2008 and 71 stores opened in 2007. However, with signs of
recovery in the economy, the company opened 17 stores in fiscal
2010.
However, we remain cautious about
the macro-economic environment and sluggish job market. The
recovery in the economy still lacks luster. As a result, consumers
and small businesses still remain cautious about their spending for
big-ticket items, such as business machines and other durables. We
observe that the demand for office products is closely related to
the health of the economy.
Currently, we prefer to have a
long-term ‘Neutral’ rating on the stock. Office Depot, which
competes with Staples Inc. (SPLS) and
OfficeMax Inc. (OMX), holds a Zacks #3 Rank that
translates into a short-term ‘Hold’ recommendation and correlates
with our long-term view.
OFFICE DEPOT (ODP): Free Stock Analysis Report
OFFICEMAX INC (OMX): Free Stock Analysis Report
STAPLES INC (SPLS): Free Stock Analysis Report
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