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Office Depot profit falls sharply, expenses climb

Office Depot Inc, the second-largest US office supplies retailer, posted a sharply lower quarterly profit on Tuesday, hurt by higher expenses and lower sales in North America.

Q4 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% to $3.9 billion.

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

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 said Q4 sales fell 2.6%.

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

Office Depot said the housing crisis continues to hamper its results, as weakness in key areas like Florida and California spreads into other markets.

Quarterly sales at Office Depot's North American business fell 3% to $1.7 billion. Comparable store sales in the United States and Canada fell 7% during the period.

The company also said operating profit in its North American retail segment fell to $23 million during the quarter, from $109 million a year earlier.

The overall results include an adjusted tax benefit of $30 million.

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. (Reuters)