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Office Depot's First Quarter Results

April 26, 2007

• GAAP Diluted EPS up 30%
• Adjusted, Diluted EPS up 25%
• Sales up 7%

Office Depot, Inc. (NYSE:ODP) announced first quarter results for the fiscal period ended March 31, 2007.

FIRST QUARTER RESULTS

Total Company sales for the first quarter grew 7% to $4.1 billion compared to the first quarter of 2006. Sales in North America were up 3%, while International sales increased 21% in U.S. dollars and 11% in local currencies. Sales in North America during the first quarter were depressed early in the quarter by the launch of the Microsoft(R) Windows Vista(TM) operating system and the related lack of available PC inventory, and later in the quarter by a softening in spending by small business customers.

Net earnings for the quarter were $156 million compared to $130 million in the same quarter of the prior year. Diluted earnings per share were $0.56 in the first quarter of 2007 versus $0.43 in the same period a year ago. Excluding Charges, net earnings as adjusted increased to $168 million in the first quarter of 2007 from $144 million in 2006. Diluted earnings per share as adjusted increased 25% to $0.60 in the first quarter of 2007 from $0.48 in the same period last year(1).

"We are pleased that we have a business model that generates profitable growth even in a challenging quarter," said Steve Odland, Office Depot's Chairman and CEO. "The strategic initiatives that we have implemented have led to sales growth in each of our Divisions as well as lower operating expenses and expanded total company margins. This overall growth in sales and operating margin expansion was realized despite disruption in supply caused by the release of Microsoft(R) Windows Vista(TM) at the end of January and a softening in small business spending during the quarter. Sales in the second quarter may be similarly affected if the current business conditions persist in North America. However, we will continue to manage our business to optimize profitable growth."

EBIT, as adjusted, was $249 million for the quarter or 6.1% as a percentage of sales, up 40 basis points versus the comparable prior year period(1).

Gross margin declined 40 basis points due to lower margins from acquisitions, higher paper costs, and a shift in mix in the North American Business Solutions and International Divisions. Operating expenses decreased as a percentage of sales by approximately 70 basis points due to leverage on higher sales and expense control.

In the first quarter, Office Depot repurchased approximately 2.6 million shares of common stock for $90 million under the repurchase programs previously approved by the Board of Directors. Subsequent to the end of the quarter, the $110 million remaining authorization for repurchases was substantially completed and an additional 2.1 million shares were acquired. Additionally, the Board of Directors authorized share repurchases of an additional $500 million in market value.

Return on Invested Capital (ROIC) for the trailing four quarters, as adjusted, improved 280 basis points to 16.1% as compared to 13.3% in the prior year. Return on Equity (ROE), as adjusted, increased 690 basis points to 23.0% compared to 16.1% for the previous four quarters.

FIRST QUARTER DIVISION RESULTS

North American Retail Division
First quarter sales in the North American Retail Division grew by 3% to $1.8 billion, compared to the same period last year. Comparable store sales in the 1,042 stores in the U.S. and Canada that have been open for more than one year decreased 3% for the first quarter. Comparable sales were significantly negatively impacted during the quarter by the disruption in PC sales caused by the launch of the Microsoft(R) Windows Vista(TM) operating system, and a softening in business spending, particularly in furniture sales to small and home office customers.

The North American Retail Division had an operating profit of $155 million for the first quarter of 2007, up from $135 million in the same period of the prior year. During the quarter, Office Depot continued to execute planned store expansions and remodels by opening 16 new stores and remodeling 80. These activities have a short-term negative impact on the Division's results, but represent an important part of the longer term profitable growth strategy. Despite these cost pressures, operating profit margin improved 90 basis points to 8.4% in the quarter from 7.5% in the prior year period due to higher product margins and disciplined cost management.

At the end of the first quarter, Office Depot operated a total of 1,174 stores throughout the U.S. and Canada.

Inventory per store was $946 thousand as of the end of the first quarter of 2007. Inventory was increased due to early stocking of next generation PCs and laptops equipped with the Microsoft(R) Windows Vista(TM) operating system at the end of the quarter.

North American Business Solutions Division
Sales in the North American Business Solutions Division increased by 3% compared to the first quarter of last year. From a channel perspective, first quarter 2007 revenue reflects sales growth of 10% in the contract channel (including the recent Allied acquisition) which more than offset expected declines in the direct selling channel from the Division's brand consolidation which deliberately reduced some unprofitable business. As with North American Retail, sales in this Division were impacted by a softening in business spending late in the quarter, particularly in the small and medium businesses.

The North American Business Solutions Division had an operating profit of $73 million for the first quarter of 2007 compared to $94 million for the same period of the prior year. Operating margins declined compared to the first quarter of last year, reflecting a continuation of the temporarily higher expense levels associated with the investment in the expansion of both the contract sales force as well as the implementation costs associated with a new furniture delivery program. These expenses, which significantly raised operating costs in the first quarter are expected to moderate over the next few quarters.

International Division
Sales in the International Division including 2006 acquisitions, increased 21% in U.S. dollars compared to the first quarter of 2006, and local currency sales increased 11% over the prior year. Importantly, all channels contributed positive growth and the Division has realized its fifth straight quarter of sales growth in local currencies. Notably, contract sales increased by 9% versus the same period last year, reflecting the Division's focus on new account acquisition as well as expanding sales with existing customers.

Division operating profit was $82 million in the first quarter of 2007 compared to $69 million in the prior year's first quarter. Operating profit margin was down slightly to 7.6% in the first quarter of 2007 due to the mix of newly acquired businesses. Excluding acquisitions, operating margins for the Division expanded by 50 basis points. We anticipate that lower operating margins realized in our recent acquisitions will expand from their current levels as we execute our plans to leverage purchasing power and extract additional synergies.