UPDATE 2-Office Depot’s cost cuts bear fruit but sales grim

* Cost cuts boost quarterly profit

* Sales fall 4 pct to $2.9 billion

* Some see CEO Odland’s departure as a positive

* Shares down 1.5 pct
(Adds analyst comments, rivals, share movement)

By Dhanya Skariachan

NEW YORK, Oct 27 (BestGrowthStock) – Office Depot Inc (ODP.N: )
reported a quarterly profit on tight cost controls, but its
sales fell as small businesses and consumers cut back on office
supplies in a weak U.S. economy.

The results from the second-largest U.S. office supplies
retailer came just days after it announced the departure of its
embattled chief executive officer. [ID:ID:nN25221945]

Office Depot, which earlier this week had reported
preliminary third-quarter earnings above Wall Street
expectations, said sales fell 4 percent to $2.9 billion, while
operating expenses declined by about 8 percent.

Sales at the 1,131 stores in the U.S. and Canada that have
been open for more than one year were flat.

Standard & Poor’s retail analyst Michael Souers attributed
the lackluster sales numbers to weakness in the contract and
international segments.

“We expect business conditions to remain weak well into
2011 and project an increase in promotional activity over the
holiday season,” said Souers, who reiterated his “sell” rating
on the retailer’s stock.

Shares of Office Depot were down 1.5 percent at $4.70 on
the New York Stock Exchange.

Earlier this week, larger rival Staples Inc (SPLS.O: ) backed
its forecasts for the third quarter ending on Oct. 30 and the
full year, which could miss Wall Street expectations.
[ID:nN25287600]

Many investors look at office supplies retailers as a
barometer of economic health since demand for their products is
closely tied to white-collar employment rates.

However, some analysts said many factors behind Office
Depot’s lackluster sales were company-specific.

BB&T Capital Markets analyst Anthony Chukumba said he was
happy to see some improvement in hard-hit markets like
California, but added that the company was still far behind
rivals.

“They are still underperforming (Staples and OfficeMax) by
just about any metric,” Chukumba said.

Analysts have looked at Odland’s departure as a good step
for the company, which has consistently lost market share to
Staples and smaller rival OfficeMax Inc (OMX.N: ).

Odland, who settled improper disclosure charges with U.S.
regulators, will step down as chairman and CEO on Nov. 1. A
company director will replace him on an interim basis.
[ID:nN25221945]

Office Depot’s third-quarter net income was $54 million, or
18 cents per share, compared with a year-earlier loss of $413
million, or $1.51 per share.
(Reporting by Dhanya Skariachan, editing by Gerald E.
McCormick and Lisa Von Ahn)

UPDATE 2-Office Depot’s cost cuts bear fruit but sales grim