Summary
1)Given ODP's lackluster Q1 and Q2 Earnings announcements TY, will analyst and investor confidence again be shaken in the midst of an internal investigation that could destroy EPS this year and continue to erode share price? 2)ODP continues to struggle and appears to be mired in turnaround efforts while SPLS has continually grown share and profitability. 3)Analyst and investor focus has begun shifting towards Steve Odland's leadership, business acumen and inability to sustain company growth in two successive years. 4)Will the internal investigation regarding timing of recognition of vendor revenue funding ultimately lead to sanctions/fines from the FTC levied against ODP and if so, will this internal investigation ultimately affect all retailers who participate in these lucrative incentives with little or no current Federal regulation? 5)Could the "irregularities" border on violation of Sarbanes-Oxley?
Analysis
Although anything spoken at this point regarding the delay of Q3 earnings due to the vendor funding issue is purely speculative, it would appear that ODP had already figured out that something had gone awry on 9/11/07 when they announced in a press release that the Q3 earnings release would occur on 10/31 and that coinciding with this announcement, a "quiet" period running from 9/11 until 10/31 would occur with no communication between the company and the investment analyst community. Although much has already been said concerning the poor Q1 and Q2 results particularly at retail store comp growth level, moderate Contract growth and a heavily leveraged expense line due to the integration of the 4 contract businesses that ODP acquired LY in Europe, Asia and the US, what doesn't need to be additionally said is a disclosure(once Q3 is finally announced), that PERHAPS Q1 and Q2, already judged as disappointing quarters, MIGHT have been favorably impacted by vendor funding applied prematurely or late and IF it should have been P/L line listed in either of the first 2 fiscal quarters, thus, making already soft fiscal periods even worse, should the vendor dollars get moved to Q3! Again, this is pure speculation on the part of the writer, but one thing is certain---something has gone desperately wrong this year for ODP and whatever it is, it transcends the soft small and midsize business economy, poor housing stats, the subprime mortgage disaster and record oil prices. ODP is on the ropes and a knockout blow in the form of timing of vendor fund benefit could bring them to the canvass at years end earnings release.
