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

Jan 22, 2013, 08:00 ET from

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    

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

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.


  1. Office Depot Inc. Technical Analysis [ ]

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