The ratings on Boca Raton, Fla.-based Office Depot Inc. reflect Standard&Poor's Ratings Services' opinion that the company's business risk profile is "vulnerable," largely due to significant competition; demand correlation with white-collar employment; the strong bargaining power of large corporate customers; and low, inconsistent profitability. We consider the office product retailer's financial risk profile "highly leveraged," reflecting sizable lease-adjusted debt levels and weak cash flow, partly owing to the high rent burden associated with operating oversized stores. The company continues to implement productivity-enhancing initiatives while reducing the average size of its stores; however, we think it will be some time before it reaches a North American retail square footage level sufficient to withstand a meaningful protracted recession. It is
