Summary
1)Despite a very soft year overall in the Office Supply sector, OMX has achieved 3 consecutive quarters of positive retail store comps and could very well be taking share from struggling ODP in overlap markets. 2)Although overall contract sales grew by 2.4% against Q3 LY(reflecting mainly growth in International), sales in the US Contract Division of (1.9%) quarter over quarter reflect continued difficulty in retaining existing accounts and/or opening new business accounts with mid and large businesses. 3)With 7 consecutive fiscal quarters of cost-cutting activities on nearly every controllable expense line driving much of the bottom line successes, one has to wonder how much longer this strategy can last without the "silver bullet" of topline sales growth in retail store, Contract and E-commerce divisions.
Analysis
Despite the fact that on whole, OMX has executed its turnaround strategy extremely well over the past 2 years, the simple fact remains that much of the success is due to to defensive tactics that have revolved around expense reduction via store closures, HQ consolidation, Advertising/Marketing budgeting austerity, scaled down store openings and remodels that have left them vulnerable against more aggressive rivals, Staples and Office Depot. ODP's struggles this year have been somewhat of a silver lining for OMX and SPLS to the black cloud of a weak economy that has hovered over the sector this year; minimally, ODP's difficulties should provide OMX an opportunity to gain a modicum of share in the sector. However, cutting costs over a hyper-extended period of time will not be the ultimate cure for the ultimate dilemma for OMX, i.e., finding sales growth via new customer base of small and midsize businesses shopping OMX's retail stores, Contract and website.
