.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Dear Mr. Berko:

Dear F.R.:

Office Depot Inc. (ODP-$13.50) is one of the world’s largest purveyors of office products. ODP has 1,300 stores and should produce $16 billion in 2007 revenues. ODP has 273 million shares outstanding that should report 2007 earnings of $1.82 per share ($515 million total) vs. earnings of $1.96 per share in 2006, and not one of those shares pays a dividend. Meanwhile, the price of ODP shares in the last year has fallen like a tear from a tall camel’s eye to $13.50 from $40.

But earnings have tripled since 1997, and a 100-share investment of $1,700 then would be worth $2,400 today.

Staples Inc. (SPLS-$22.95) is also one of the largest purveyors of office products. SPLS has 2,000 locations that produced $20 billion in revenues. SPLS has 717 million shares outstanding and should report 2007 earnings of $1.45 per share ($1.1 billion total) vs. 2006 earnings of $1.28 per share, and each of those shares pays a 29-cent dividend. Meanwhile the price of SPLS has fallen in the last 12 months to $22.95 from $27.

However, SPLS’s earnings have grown sevenfold since 1997, and a 100-share investment of $1,500 then would be worth $4,600 today.

Both ODP and SPLS sell the same products at the same prices to the same people in the same markets. ODP has net profit margins of 3.3 percent and SPLS’s net profit margins are 5.4 percent. Yet ODP’s revenues and earnings pale in comparison to the numbers reported by SPLS.

The reason may be simple. ODP’s home office is just six miles from my office window, and several unimportant key management people told me that CEO Steve Odland is not a nice person, and some of his favorite “yes-men” are dumber than a bag of hammers. Odland’s cost-cutting initiatives seem to be a bit draconian and are hurting performance. Service at many ODP units is nearly nonexistent; store employees can be surly if you can find one willing to help you.

Meanwhile, SPLS continues to chug along with annual dividend increases, annually improving gross margins, operating margins and net profit margins, and a market cap of $16 billion compared with ODP’s market cap of $5.5 billion. SPLS has good, experienced and enthusiastic management people running the store, and the numbers are proof.

During the last quarter, revenues at ODP’s retail division fell 5.1 percent, furniture sales were weak and its business solutions division (large accounts) is having trouble expanding its customer base. In fact, Odland decided to reduce new-store openings by 25 percent in 2008 in an attempt to preserve resources.

SPLS seems to have established a dominant retail market, has been aggressively opening new stores and has increased its sales force to serve its large-account business.

Yes, the difference is management. SPLS has a quality team of managers; ODP’s top shots ought to be replaced.

However, I wouldn’t own either stock, because the collapsing home-building market and commercial construction industry are acting like anchors on economic growth. Small businesses are closing their doors, restaurants are going out of business, and the plumbing, glass, furniture, paving, appliance businesses, etc. are off by 40 percent to 65 percent, and 2008 looks like it will be worse than 2007. A lot of these folks may not purchase office supplies in 2008. F.R., Boca Raton, Fla.