Office Depot Inc recently announced that it will put up the shutters on its nine existing stores in Canada on June 11. However, it will continue to provide services to its customers through its Canadian website, according to Business Journal.
The supplier of office products entered the Canadian market in 1992 by acquiring the Great Canadian Office Supplies Warehouse chain. Its exit will make around 180 Canadian workers jobless.
Office Depot claims that the move was the part of the company’s initiative to enhance its growth prospects by cutting down on investments in sections that no longer contributes significantly to its long-term growth.
The company is repositioning itself in this difficult consumer environment by containing costs, closing underperforming stores, reducing exposure to higher dollar-value inventory items, shuttering non-critical distribution facilities and focusing on providing innovative products and services.
Furthermore, the company in order to enhance its global footprint has made strategic acquisitions over the past few years, and is still looking for accretive opportunities. Office Depot is reviewing capital-efficient opportunities to expand its reach in Eastern Europe, Asia and South America. The company believes that India and China will provide significant growth opportunities.
Office Depot has been actively managing its cash flows. The company generated free cash flow of $30.2 million during fiscal 2010, and projected free cash flow of approximately $50 million for fiscal 2011. In addition, the company’s strong liquidity driven by healthy cash balance, positions it to drive future growth.
We also appreciate Office Depot’s rational approach to slow the pace of store 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. However, with signs of recovery in the economy, the company opened 17 stores in fiscal 2010.
However, we remain cautious about the macro-economic environment and sluggish job market. The recovery in the economy still lacks luster. As a result, consumers and small businesses still remain cautious about their spending for big-ticket items, such as business machines and other durables. We observe that the demand for office products is closely related to the health of the economy.
Source : Zacks