OMX Officemax Incorporated

Tomorrow, Office Depot Inc. (ODP), one of the leading suppliers of office products and services across the globe, will reopen 13 remodeled stores in Houston, Texas bringing in Tony Stewart, NASCAR champion, as a celebrity guest. The company currently operates 46 stores in Houston.

The remodeled stores are tailored according to consumer preferences, which will help save shopping time. On the left hand side of the store one can find Copy & Print Depot and other technology products, whereas on the right hand side supplies are displayed. The cash counter is positioned at the front of the stores.

The company, in order to drive sales, has undertaken initiatives including improvement in customer in-store shopping experience, investment in Copy & Print Depot and Tech Depot services, remodeling of stores and introduction of smaller format stores, and margin improvements through rationalization of stock keeping units and product pricing.

In view of this, the company rolled out 8 locations of size 5,000 square feet. Moreover, continuing with its margin improvement initiatives, the company remains committed towards price optimization and effective promotions. Office Depot kicked off a new service model in 300 stores before year-end 2011, and plans to initiate the new model in additional 360 stores in the first quarter of 2012, with the expectation of implementing in all the stores by this year-end.

We appreciate Office Depot’s rational approach to slow the pace of stores openings in North America, given the weak consumer environment. The company opened 6 stores in fiscal year 2009, significantly down from 59 stores opened in 2008 and 71 stores opened in 2007. The company opened 17 stores in fiscal 2010 and 9 stores in fiscal 2011. Office Depot now plans to increase the store count in a low single-digit number in fiscal 2012.

We remain cautious about the macroeconomic environment and sluggish job market. The recovery in the economy still lacks luster. As a result, consumers and small businesses remain watchful about their spending for big-ticket items such as business machines and other durable products. We observe that the demand for office products is closely tied to the health of the economy.

No one can predict the future but genuine efforts are being implemented to combat the tough economy. Business budget remains tight, consumers remain cautious than ever before and companies are trying hard to navigate through the challenging maze. Going by the pulse of the economy and given the pros and cons, we prefer to maintain our long-term “Neutral” recommendation on the stock. Moreover, Office Depot, which competes with OfficeMax Inc. (OMX) and Staples Inc. (SPLS), holds a Zacks #3 Rank that translates into a short-term “Hold” rating.

 
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