NEW YORK (Reuters) - Office supplies retailer Office Depot Inc (ODP) said on Tuesday that its North American same-store sales fell nearly 10 percent in the second quarter and warned its operating margins would fall more than expected, hit by a weakening U.S. economy.
In a preliminary forecast, the retailer also said its total company sales declined in the quarter and it was "disappointed" with the results. Its shares fell to 15 percent to $8.86 before the bell.
Office Depot has been hit hard by the weakening U.S. economy, as small businesses -- its core customers -- have cut back on spending due to declining home values and the credit crunch.
In April, the retailer reported a 55 percent drop in first-quarter profit and said at the time that it expected sales to continue to be challenged in the second quarter.
Following the warning on Tuesday, Credit Suisse analyst Gary Balter cut his price target on Office Depot shares to $13 to $8 and slashed his 2008 earnings per share estimate from 95 cents to 43 cents per share.
"Our Q1 earnings note title at the time, 'Self Delusional?', reflected our concern that the company seems not only to be headed on a downward spiral but also refuses to admit it," Balter wrote in a note. "That, as we have seen at too many retailers over the years, is a dangerous combination, and today's press release is an outcome of that."
Office Depot also warned that its second-quarter earnings before income tax (EBIT) margin -- or operating margin -- is expected to decline 2 percentage points more than the 2 percent to 2.5 percentage point decline it previously expected on a year-over-year basis, as sales trends worsened late in the quarter.
"While the company anticipates the economic environment to be difficult over the balance of the year, it expects its profit margins to improve sequentially in the third and fourth quarters," Office Depot said in a statement.
Shares of Office Depot, which have fallen about 66 percent in the last year, closed at $10.41 Monday on the New York Stock Exchange.
(Reporting by Shivani Singh in Bangalore and Nicole Maestri in New York; Editing by Jarshad Kakkrakandy and Derek Caney)
