2016 Retail Store Closings Planned

Macy’s announced it would be closing 35-40 underperforming brick and mortar retail stores in the 2016 calendar year, making room to open its discount stores. Other retailers also announced plans to close doors in 2016, including Office Depot, Walgreens, The Gap and Barnes & Noble.

While retailers are usually reluctant to announce store closures because of the uncertainty it can create with investors and analysts, it also can be viewed favorably as a company’s ability to change quickly in such a competitive retail environment.

Retailers who have announce the highest number of store closures include: Office Depot/Office Max (400 closures), Barnes & Noble (223), Children’s Place (200), Walgreens (200), Aeropostale (175), American Eagle (150), Chico’s (120) and Pier One (60).

Source: about money.com

Staples to Buy Office Depot for $6.3 Billion

In an effort to better compete with online and big-box office supply retailers, Staples agreed to buy rival Office Depot in a $6.3 billion cash and stock deal. Staples said it started discussion with Office Depot in September, and the deal is expected to close by the end of 2015.

Amazon.com and Walmart have eaten into the sales of the office supply retailers.

Staples has market value of $11 billion, while Office Depot, its nearest rival, has a market value of $4 billion. Regulators denied Staples’ previous attempt to buy Office Depot in 1997 due to antitrust concerns. However, the FTC approved Office Depot’s $976 million acquisition of OfficeMax in 2013, citing increased competition in the office supply industry.

"This transaction delivers great value for our shareholders and creates a company ideally positioned to serve our customers and grow over the long term," said Office Depot CEO Roland Smith. "It is also an endorsement of our many accomplishments and the tremendous success we've had integrating Office Depot and OfficeMax over the past year. We look forward to bringing our experience and knowledge to the new organization."

"This is a transformational acquisition which enables Staples to provide more value to customers, and more effectively compete in a rapidly evolving competitive environment," said Ron Sargent, Staples' Chairman and CEO, in a statement. "We expect to recognize at least $1 billion of synergies as we aggressively reduce global expenses and optimize our retail footprint. These savings will dramatically accelerate our strategic reinvention which is focused on driving growth in our delivery businesses and in categories beyond office supplies."

Sources: Wall Street Journal, RetailWire

Merger Magic Evident At Office Depot

November 4, 2014

Sales continued to decline at Office Depot in the third quarter, but CEO Roland Smith said excellent execution allowed operating profits to more than double.

Total company sales on a pro-forma basis to reflect the merger of Office Depot and Office Max declined 3% to $4.1 billion during the period ended September 27.  The top line decline was steeper at the company's 1,851 unit North American retail division where sales declined 7% to $1.7 billion due to store closures and a 3% same store sales decline driven by a reduced transaction volume.

Smith said challenging market trends and store closures would continue to negatively affect sales in the fourth quarter, but the executive noted merger related synergies are allowing the company to exceed profitability expectations.

"Our third quarter results reflect excellence in execution against our critical priorities and merger integration objectives, and we are very pleased to have more than doubled our adjusted operating income from last year's combined pro forma results," Smith said.  "We continue to make significant progress on merger integration and have exceeded our synergy targets for the quarter.  Accordingly, we are raising our 2014 outlook for adjusted operating income to a range of $255 million to $265 million, which is more than 150% higher than pro forma 2013.  Looking ahead, our preliminary estimate for 2015 adjusted operating income is approximately $475 million, which is an 80% increase from our 2014 outlook."

Source: Retailing Today

Synergy Savings Keep Climbing At Office Depot

August 5, 2014

Office Depot softened the blow of weak second quarter sales by bumping up the pace of 400 store closings to drive greater than expected operating profit growth and expense savings related to the merger with OfficeMax.

Office Depot merged with Office Max last November and shortly thereafter announced plans to close 400 stores by the end of 2016.  The total number of closings remains intact, but the company now expects to close 165 of the stores this year compared to an earlier forecast of 150 closings in 2014.  The estimate of expense savings related to the closures was increased to $100 million from a $75 million estimate share at the end of the first quarter.

In total, Office Depot estimates the optimization of its North American store portfolio combined with other savings will result in annual run-rate synergies totaling $700 million.  That figure is well above the $400 to $600 million range shared when the deal was announced last year, and the $675 million estimate shared at the end of the first quarter.

Because the expense savings are being realized faster than initially forecast, the company is growing adjusted operating income faster than planned in the absence of any top line growth.

During the second quarter, our team executed exceptionally well, which enabled us to deliver merger synergies more quickly than anticipated," said Roland Smith, chairman and CEO of Office Depot.  "We are very pleased with the integration of legacy Office Depot and OfficeMax as we create a culture focused on achieving our critical prioities in the near and long term.  As planned, we have completed our analysis of the North America retail store optimization strategy and have continued to make progress on the development of our unique selling proposition.  Based on accelerated synergies and improving execution, we have updated our full year 2014 outlook for adjusted operating income to be not less than $200 million, an increase from our prior outlook of not less than $160 million."

Despite progress on the expense front, sales remain challenging for the company's retail, commercial and international divisions.  On a consolidated basis, sales for the second quarter increased to $3.8 billion from $2.4 billion, reflecting the inclusion of OfficeMax results.  However, on a pro-forma basis, looking at results as if both companies existed on a stand-alone basis, sales declined from $3.9 million.

Sales at the company's North American Business Solutions division declined 1% to $1.5 billion, on a pro forma basis while the operating profits ticked up to $59 million from $53 million.  International sales were essentially flat on a pro forma basis with the division's loss declining to $2 million from $6 million.

Source: Retailing Today

ODP Plans 400 Store Closures

May 6, 2014

Office Depot said it plans to close 400 of its 2,000 stores as it looks to realize efficiencies related to its merger with OfficeMax.

An estimated 150 of the stores will close this year, according to the company, which reported first quarter results and continued weakness in same store sales.  The company anticipates that the closures will generate annual run-rate synergies of at least $75 million by the end of 2016 and will begin to be accretive to earnings in 2015.

Total reported sales for the quarter were $4.4 billion compared to $2.7 billion in the first quarter of 2013, and were 3% lower than combined pro forma sales of $4.5 billion in the first quarter of the prior year.

The company reported an operating loss of $79 million and a net loss attributable to common stockholders of $109 million, or $0.21 per share.  The operating loss included special charges totaling $151 million, which were made up of $96 million in merger-related expenses, $41 million in non-cash IT-related impairment charges, $9 million in non-cash store impairment charges, and $5 million in international restructuring and other operating expenses.  The tax effect of these pretax charges was $4 million.  In the first quarter of 2013, the company reported operating income of $10 million and a net loss attributable to common stockholders of $17 million, or $0.06 per share.

"We are pleased with our first quarter performance.  After a weather-challenged start to the year, sales trends improved as the quarter progressed, and we exceeded our expectations for both cost reduction and operational execution," said chairman and CEO Roland Smith.  "With our new organizational structure established and leadership team largely in place, the execution on our critical priorities is improving, and we are delivering merger integration synergies more quickly than anticipated.  Accordingly, we have increased our full year 2014 outlook for adjusted operating income to be not less than $160 million from our prior outlook of not less than $140 million."

The company's North American Retail Division reported sales in the quarter of $1.8 billion compared to $1.1 billion in the first quarter of 2013, reflecting the inclusion of OfficeMax sales in the first quarter of 2014.  On a combined pro forma basis, first quarter 2014 sales declined 5%, and same-store sales declined 3% versus last year.  Same-store sales decreased primarily due to lower transaction counts partially offset by higher average order values.

Meanwhile, the Business Solutions Division reported sales of $1.5 billion in the quarter compared to $0.8 billion in the prior year period, reflecting the inclusion of OfficeMax sales in the first quarter of 2014.  On a combined pro forma basis, sales declined 2%.

International Division reported sales of $1 billion in the quarter compared to $0.8 billion in the proir year quarter, reflecting the inclusion of OfficeMax sales in the first quarter of 2014.  On a combined pro forma basis, sales declined 1% in constant currency.

For the remainder of 2014, Office Depot continues to expect that market trends will remain challenging across the company's product lines and distribution channels, and therefore continues to anticipate total company sales in 2014 will be lower than 2013 combined pro forma sales.  The expense deleverage from lower sales is expected to offset a portion of the merger synergies and operating improvements anticipated during the year.  Based upon earlier than expected realization of cost synergies and improved operational execution in the first quarter, the company now expects to generate adjusted operating income of not less than $160 million in 2014 compared with its prior outlook of not less than $140 million.

Including at least $75 million in annual run-rate synergies from the optimization of the U.S. retail store portfolio, the company also raised its estimated total annual run-rate of synergies to more than $675 million by the end of 2016, compared to its prior outlook of more than $600 million.  Of those synergies, the company now expects to realize approximately $180 million during 2014, and end the year with an annual run-rate of approximately $360 million, not including any benefit from the retail store network optimization.

The company also continues to estimate that $400 million of cash merger integration expenses will be required during the three-year period of 2014 through 2016 to substantially complete the integration, excluding costs related to optimizing the U.S. retail store portfolio, which have not yet been determined.  Approximately $300 million of these cash integration expenses will be incurred in 2014.  The company continues to anticipate integration capital spending of approximately $200 million to $250 million during the 2014 through 2016 period.  In 2014, the company expects capital spending to be approximately $150 million, excluding up to an additional approximately $50 million in integration expenditures.  Depreciation and amortization is expected to be approximately $300 million in 2014.

Source: Retailing Today 

Office Depot Focuses On Global Growth Following Q4

February 25, 2014

Since Office Depot completed its merger transaction with Office Max November 5, 2013, the company has been aggressively executing its integration plan.  The company's fourth quarter results for the period ended December 28, 2013 include OfficeMax's operations, which generated $939 million of sales.

Chairman and CEO Roland Smith said that the company is focused on a number of key priorities, which include creating a lean organization with clear roles and accountabilities as well as defining its vision, mission and long-term global growth strategy.  Smith anticipates that the company's comprehensive reorganization will be completed by the end of the month.

"For 2014, we are committed to delivering not less than $140 million of adjusted operating income," he added.

Total sales for the quarter increased 33% to $3.5 billion compared to the prior year quarter.  The company also reported an operating loss of $118 million for the quarter compared to operating income of $5 million in the prior year quarter, and a net loss attributable to common stockholders of $144 million, or $0.34 per share, compared to a net loss of $17 million, or $0.06 per diluted share in the prior year quarter.  The reported results include merger-related expenses, asset impairment and other charges.

Following the merger with Office Max, divisional reporting was aligned to the three divisions historically utilized by Office Depot: North American Retail, North American Business Solutions, and International.  The former OfficeMax U.S. Retail business is included in North American Retail, the former Office Max U.S. Contract and Canada businesses are included in Business Solutions and the former Office Max businesses in Australia, New Zealand and Mexico are included in International.

North American Retail Division sales in the quarter increased 31% to $1.4 billion compared to the prior year quarter, primarily reflecting $384 million of sales from the OfficeMax stub period, from the merger closing date to December 28.  Same-store sales decreased 4% primarily due to lower average order values and lower transaction counts, resulting from decreased store traffic.

Office Depot ended 2013 with a total of 1,912 retail stores in the North American Retail Division, made up of 1,089 Office Depot branded locations and 823 OfficeMax branded locations.  During the fourth quarter of 2013, the company closed 16 Office Depot stores and seven OfficeMax stores, and opened one store under each brand.

Business Solutions Division sales increased 54% to $1.2 billion in the quarter compared to the prior year period, primarily reflecting $422 million of sales from the OfficeMax stub period.

International Division sales increased 15% to $911 million in the quarter - an increase of 12% on a constant currency basis - compared to the prior year period, including $133 million of sales from the OfficeMax stub period.

Source: Retailing Today