Zacks Investment Research upgraded shares of Office Depot, Inc. (ODP) from UNDERPERFORM to NEUTRAL on August 29, 2012, with a target price of $1.60.
Office Depot posted second-quarter 2012 loss of $0.14 per share that widened from a loss of $0.06 in the year-ago quarter and also fared worse than the Zacks Consensus Estimate of loss of $0.09. The dismal result was due to weak top-line performance on account of soft sales in North America and Europe. Total sales fell 7% during the quarter. Management now projects third quarter sales to decline year-over-year but expects the rate of decline to improve sequentially. Gross margin expanded for the fifth straight quarter, jumping 50 basis points to 29.8%. The company is containing costs, closing underperforming stores, managing inventory and focusing on providing innovative products and services, which should all contribute to margin improvement. In order to increase store sales productivity, the company is concentrating on remodeling and introducing smaller format stores. However, we still remain cautious about the macroeconomic environment, with small businesses and consumers still remaining watchful on their spending.
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