Office Depot Warns of Lower Quarterly Profit

Shares of Office Depot Inc. dropped to a year low Friday after the largest U.S. office supplies retailer said it expects second-quarter earnings to come in below Wall Street estimates because of disappointing sales and a strong dollar.

The Delray Beach, Fla.-based company said it expected to post earnings 4 cents to 6 cents a share below the 24-cent consensus estimate of analysts surveyed by First Call/Thomson Financial. It is the second time in the last four quarters that the retailer, which operates 836 office supply superstores in the United States and Canada, has been forced to issue a profit warning, analysts said.

The company attributed the latest setback to slower-than-expected May sales in stores opened at least a year and cost-saving efforts that have taken longer to implement than the company anticipated. In addition, a strong U.S. currency reduced the dollar value of revenue generated outside the United States. The company has operations in 19 countries, including Japan, Australia, Germany, France and Italy, according to Hoover’s Company Profiles.

“This is the company’s second miss in the last four quarters. It highlights the fact that turnarounds are difficult,” said analyst Ursula Moran at Sanford C. Bernstein & Co. “They are struggling to reverse some disappointing performances from last year.”

Last August, the company warned of lower-than-expected earnings for the second half of 1999, blaming soft sales of lower-margin technology-related products and high inventory levels.