Shares of Office Depot, Inc. (ODP) hit a 52-week high of $5.91 on the last trading day, before it eventually closed at $5.90, amassing a year-to-date return of 10.7%.
Boca Raton, FL-based new Office Depot was created after former Office Depot and OfficeMax decided to merge to battle dwindling revenues. Following the merger, Office Depot has been on a store rationalizing drive and targets to shut down 400 overlapping locations across North America by 2016, generating $100 million in annual savings, up from $75 million forecasted earlier.
The savings will begin to be accretive by 2016. Including the synergies from store closures, management during the second-quarter fiscal 2014 conference call had raised merger synergies expectations to $700 million by 2016, up from earlier expectation of $675 million. Of these expected synergies, roughly $220 million are expected to be realized in 2014.
Moreover, the company’s initiatives seems to have started paying off as its performance in the first half of 2014 has been decent as the company’s top and bottom lines have not missed the Zacks Consensus Estimate in both the quarters.
The company recently posted impressive second-quarter 2014 results on Aug 5, where its adjusted loss per share of 2 cents came in line with the Zacks Consensus Estimate, narrower than the proforma loss per share of 3 cents recorded last year. Office Depot’s total revenue of $3,841 million surged 58.8% from the prior-year quarter and surpassed the Zacks Consensus Estimate of $3794 million.
Further, adjusted operating income came in at $18 million, as against a proforma operating loss of $6 million in the second-quarter of 2013. The company’s shares have soared 19.4% to date, since the earnings release.
Also, the company recently reiterated its outlook for fiscal 2014 at the Goldman Sachs Annual Global Retailing Conference. Although management expects headwinds across product lines and distribution channels to persist throughout 2014, adjusted operating income is expected to be at least $200 million, in 2014. Shares gained 5.4% since the announcement to date.
The company, which competes with rivals like Staples Inc. (SPLS), mass merchandisers such as Wal-Mart Stores Inc. (WMT) and online giants like Amazon Inc. (AMZN), remains focused on optimal store site to boost store productivity. It intends to concentrate more on augmenting sales per square foot by enhancing consumer traffic, which in turn will be facilitated by increased advertising, sales training and other customer oriented initiatives.
We believe that the aforementioned factors highlight the company’s strong fundamentals and hint at a promising future for this Zacks Rank #3 (Hold) stock, instilling confidence among investors. Also, Office Depot’s last traded price is 4.2% below the Zacks Consensus average analyst price target of $6.16, leaving further room for an upside potential.
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