Today's Analysis on Office Depot and OfficeMax: Improving Labor Market a Boon

Today's Analysis on Office Depot and OfficeMax: Improving Labor Market a Boon

  PR Newswire

  LONDON, January 22, 2013

LONDON, January 22, 2013 /PRNewswire/ --

Back in September 2012, Federal Reserve Chairman Ben Bernanke announced an
aggressive bond buying program to boost economic growth. Under QE3, as the
bond buying program is called, the Fed pledged to buy mortgage backed
securities worth $40 billion every month until there is a sustained recovery
in the labor market.

Since the Fed announced QE3, the labor market has shown signs of improvement
albeit at a very slow pace. The unemployment rate has dipped below 8%. On
Thursday, a report from the Labor Department showed that initial jobless
claims fell to a five-year low last week.

OfficeMax and Office Depot Turned in Profits

All these augur well for office supply companies OfficeMax Incorporated (NYSE:
OMX) and Office Depot Inc. (NYSE: ODP). Reports on these companies have been
posted for free at

http://www.stockcall.com/analysis  

Both OfficeMax and Office Depot turned in a profit in their most recently
reported quarterly results. However, the profit was generated mainly due to
cost-cutting measures. Both companies also posted a drop in sales in the
quarter. StockCall technical report on OfficeMax is available now for
download. Sign up at

http://www.StockCall.com/OMX012213.pdf

Although the labor market has shown signs of improvement, office supply
companies are still operating in a tough environment. Some analysts believe
that the best course of action for the two companies would be to merge. Back
in November last year, Caris & Co. said that combining the two companies is
the most logical way to spur profit growth and cut costs via store closures.
However, the two companies have not shown any interest in a possible merger.
Instead they are focusing on streamlining their operations.

Streamlining Operations

OfficeMax and Office Depot have been closing stores or reducing square footage
in order to reduce costs. The companies have also been expanding their online
sales.

Office Depot [ Free Report on ODP ] ^( ^1) has boosted its bottom-line by
reducing promotions. The company is also looking to downsize or relocate some
500 stores and close about 20 stores. It also plans to remodel its stores into
a smaller format of 5,000 to 7,000 square foot.

Concept Stores

Earlier this month, Office Depot had announced that it developed a new store
concept that improves the shopping experience for customers. The company said
that its store formerly located at 6935 U.S. Highway 90 has been relocated to
6900 U.S. Highway 90 Suite 3 under the new concept.

This week, Office Depot announced that its store formerly located at 1 Orland
Park Place Suite 190 has been reopened at 15202 S. LaGrange Road with a new
concept that has been created to encourage customers to interact more with
products.

The remodeling and relocation of stores should help Office Depot in what is
expected to be another challenging year for the company. Neil Austrian, CEO of
Office Depot, had said at the time of the release of the company's quarterly
results in November last year that cost cutting and margin improvements could
yield benefit of approximately $300 million from 2013 to 2015.

While cost-cutting measures will certainly help Office Depot and OfficeMax,
both companies will also benefit from an improvement in the labor market. It
will be interesting to see if the improving labor market had any positive
impact on the two companies' top-line results in the fourth quarter.

Footer:

1.Office Depot Inc. Technical Analysis [
    http://www.StockCall.com/OfficeDepotInc012213.pdf ]

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