Office Depot to close 126 stores

Florida-based Office Depot Inc. is closing 126 stores in North America over the next few months to cut capital spending and operational overhead, the office supplies retailer announced Wednesday.

The company said three Canadian locations will close: in Edmonton, Mississauga, Ont., and Markham, Ont.

Office Depot, which sells everything from paper clips to computers — mainly to medium-sized and small businesses — said the paring-down of its store count will save much-needed cash and improve its bottom line.

"These actions should benefit 2009 EBIT (earnings before interest and taxes) and cash flow by approximately $90 million and $70 million US, respectively. The benefit to cash flow is primarily a result of lower 2009 capital spending, payroll savings and operational improvements from store closures," Office Depot said in a release.

The company has been faced with slumping sales as the flagging U.S. economy has forced customers to cut back on their purchases. In the third quarter, Office Depot reported sales were down 11 per cent from the same period of 2007.

The firm's latest cost reduction plan will cover operations in Canada and the United States.

Over the next three months, Office Depot plans to close 45 stores in the central region of the United States, 40 in the northeast part of the country and in Canada, 19 in the western states and nine in the U.S. South.

The firm also plans to not renew the leases of 14 stores in North America when these contracts come due in 2009.

Office Depot is also looking to close six of its 33 distribution facilities across the United States and Canada.

Office Depot, which will have 1,163 outlets in North America at the end of the process, will open new stores next year, but only 20 instead of the expected 40. That move will chop the company's capital budget to below $200 million, down from the initial forecast of $275 million.

Office Depot will take a financial charge in 2008 and 2009 related to this reorganization, totalling between $270 million and $300 million. The cash component will be about $40 million over the next 12 months.