Office Depot shares plunge on results

Office Depot Inc. shares fell sharply after the office supplies company said Tuesday that sales slid and second-quarter earnings deteriorated more than it had earlier forecast.

Office Depot fell $3.29, or 31.6%, to $7.12, the biggest drop since the company sold shares to the public in June 1988.

Sales slid almost 10% at North American stores open at least a year, the Delray Beach, Fla.-based company said.

Office Depot and larger Staples Inc. face a slump in customer demand as fewer companies buy chairs, desks and computer supplies for workers. U.S. employers cut jobs for the sixth straight month in June. Higher gasoline and food prices have also limited spending by consumers and small businesses.

“We did see particularly our small-business customers, and even our largest customers, buying a little bit less and being a little bit more careful,” Staples Chief Financial Officer John Mahoney said.

Office Depot shares have lost 49% of their value this year, compared with a 2.3% decline at Staples.

The margin for earnings before interest and taxes probably narrowed by 2 percentage points more than it predicted, Office Depot said.

Standard & Poor’s Ratings Services said it might lower Office Depot’s BB-plus credit rating further after lowering it to one level below investment grade in April. The ratings service said it expected “challenging economic trends will continue to pressure performance in fiscal 2008.”

Office Depot’s announcement also signals ongoing problems with execution of its turnaround and could lead to management changes, said Colin McGranahan, an analyst at Sanford C. Bernstein & Co.

Office Depot will report earnings July 30 for its fiscal second quarter ended June 28.