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Stock Analyst Update

Office Depot's Stock May Stagnate for a While

Cutthroat competition, weak pricing will continue to take a toll.

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What Happened?
Office Depot (ODP), the world's second-largest office supplies retailer, reported earnings for the quarter ended September 23 that fell 26% from the same period last year. Despite sales growth of 9% in the quarter, margins were hurt by intense pricing pressure in products such as printers and paper, higher warehousing costs, weak North American store sales, negative foreign currency translations, and increased spending on e-commerce.

What It Means for Investors
As we said a few months ago, we think Office Depot's stock may stagnate until the company completes its previously announced internal review and comes up with a viable turnaround plan. The company lags behind industry kingpin Staples (SPLS) in almost every financial performance measure, including return on assets, sales and earnings growth rate, and net profit margin. Thus, we think Staples may continue to take market share from Office Depot.

Mark Sellers does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.