Lots of excuses at Office Depot…
Yesterday, Office Depot (ODP) announced disappointing fourth quarter results, and mentioned, almost in passing that CFO Patricia McKay, was leaving at the end of the week. We’re sure this sudden departure had nothing — absolutely nothing — to do with a disclosure in the 10-K that the company filed yesterday:
We are subject to a formal order of investigation from the SEC, in connection with our contacts and communications with financial analysts during 2007, as well as certain other matters, including inventory receipt, timing of vendor payments, certain intercompany loans and the timing of recognition of vendor program funds.
Further into the filing, the company notes that the SEC began its inquiry last July, when the stock was trading in the high $20s. After yesterday’s news, shares are now trading at around $12. A story in today’s NY Post details what regulators are taking a closer look at. It’s pretty clear that most of these issues seem to focus on CFO-related activity, which could explain why the company didn’t even trot out the “personal reasons” excuse to explain McKay’s sudden departure. McKay joined Office Depot in September 2005 according to this profile which will probably be taken down any minute. She had been CFO at Restoration Hardware (RSTO). When McKay was hired, we footnoted the hefty perks she was getting for the California to Florida move. Since the company has yet to file a separation agreement for her, it’s not clear what she’ll get on the way out the door.
As for the disappointing results, in a conference call this morning, CEO Steve Odland blamed the slump on weak housing markets in California and Florida, where Office Depot is based. “These two states are heavily into recession,” Odland said, according to the Sun-Sentinel. “People who don’t live in those two states just probably don’t understand the difficulty there.”
Consider the link between the subprime mess and office supplies fully established.
RSS
February 27th, 2008 at 12:40 pm
You do have to also note the fact Office Depot does have about double the beta compared to its competitors, plus the company has far more leverage, which was a big deal during the 3rd quarter report dealing with capital management. Which you can’t blame since everything the company does is based off sales.
The company does seem to be taking some measures to help reduce leverage lately, which it might be a poor time to do it if the market starts to recover.
So they will logically get slammed a lot harder than the other stores will. It’s not necessarily a bad thing during a period of high growth, but right now it’s killing the company’s stock price. I have a feeling that when the economy starts to recover Office Depot will be a logical pick, but for now you have to wait until the whole suprime mess is over, plus I would highly not recommend buying before about March 3-4 when Odland’s contract expires.
Generally with office supply it’s more about measuring the economy than the company’s individual performance.
February 27th, 2008 at 12:59 pm
Great story! Keep them coming!
February 27th, 2008 at 3:17 pm
Michelle,
You have done it again. Great work! I wrote a short piece in my blog referring to this piece. Keep it up.
Best,
Richard
February 28th, 2008 at 8:19 am
A very interesting story. A couple of matters some may want to note. All three companies, ODP, AN and RSTO:
(1) Have a record of restatements or SEC investigations into accounting practices (not necessarily under her tenures),
(2) Were audited by Deloitte & Touche companies usually concurrent with Ms. McKay’s tenures,
(3) Lost meaningful sums of equity market value during her CFO and financial reigns (which of course may not be a result of Ms. McKay’s efforts).
Aug 2005—Feb 2008 While ODP CFO shares down ~55% vs SP500 up ~10%
Oct 2003—Sep 2005 While RSTO CFO shares down ~10% vs SP500 up ~20%
Jan 1997—Mar 2003 While AN CFO and SVP-Finance shares down ~65% vs SP500 up ~11%
It’s always interesting to follow executives wherever they hop to see the trail they leave.