Office Depot Mimics Dunder Mifflin (Sales Continue To Tumble)

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While the paper supply firm Dunder Mifflin from the TV show “The Office” is fictional, the outcome for Office Depot is similar. Both experienced declining sales in this on-line world.  Office Depot said it would close 300 more stores in the next three years to cut costs by the end of 2018.  The brand already closed 400 U.S. stores by the end of 2016.

Office Depot Inc. investors are skeptical that a technology makeover can help the chain rebound from a punishing retail slump.

Shares of the retailer suffered their worst decline in two months after Office Depot delivered a grim forecast and announced plans to buyCompuCom Systems Inc. for about $1 billion, giving it a platform to sell tech services to business customers. 

The company described the acquisition as the first step toward a becoming a seller of business services and technology — rather than a traditional retailer of paper, pens and staplers. But the plan wasn’t enough to reassure shareholders, who see a glum retail landscape continuing to cloud Office Depot’s future.

The shares fell as much as 20 percent to $3.66 on Wednesday, the worst intraday decline since Aug. 9. They had been up 1.5 percent this year through Tuesday’s close.

Office Depot’s sales growth has stalled, and the latest quarter hasn’t brought reason for optimism. The recent hurricanes and a slow back-to-school period both weighed on results, the company said on Tuesday. Same-store sales will decline 5 percent to 6 percent in the third quarter. Operating income will be $125 million to $135 million in the period.

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Office Depot is acquiring CompuCom from private equity investor Thomas H. Lee Partners LP in a deal that includes repaying the takeover target’s debt and issuing new shares. When the transaction is completed, Thomas H. Lee will hold an 8 percent stake in Office Depot.

CompuCom employs about 6,000 licensed technicians — the largest workforce of its kind in North America, Office Depot said. They provide software and hardware help to more than 5.1 million users at business clients.

Office Depot has been seeking a turnaround since a proposed takeover by Staples Inc. fell apart last year. After the deal was blocked by U.S. regulators, the company sold off foreign divisions and shuttered stores to cut costs. Though the moves have helped the retailer stay profitable, online competition and a broader retail slump have battered margins.

Staples, meanwhile, agreed to be acquired by private equity firm Sycamore Partners in June for about $6.9 billion.

Office Depot Chief Executive Officer Gerry Smith joined the company in February after serving as the operating chief at Lenovo Group Ltd., the personal-computer giant.
“Technology is the office supply of the future,” he said in a statement Tuesday. “Today marks a significant milestone.”

The company expects the CompuCom deal to start adding to profits in its first year. Office Depot, based in Boca Raton, Florida, plans to finance the takeover with new debt and the issuance of about 45 million shares of its common stock.

The deal is expected to add about $1.1 billion in revenue and bring cost savings of $40 million within two years. The company also plans to gain synergy by selling CompuCom services to Office Depot customers.

Goldman Sachs Group Inc. was Office Depot’s financial adviser in the transaction, with Wachtell, Lipton, Rosen & Katz serving as legal counsel. Weil Gotshal & Manges LLP provided legal advice to CompuCom, which was founded in 1987.

The Earning per share for Office Depot doesn’t look good.

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And Office Depot’s stock performance is reminiscint of European banks.

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But Staples is still carrying a higher share price than Office Depot.

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Dunder Mifflin’s on-line sales app Infinity was a disaster, and Office Depot seems to be following Ryan Howard’s model.

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