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Office Depot ‘encouraged’ by Q1; raises outlook

5/9/2018
Office Depot Inc. reported first quarter sales and profits that exceeded expectations as it continues to transform itself from a traditional office supplies retailer to a services-led shopping experience with a broader business services platform.

The retailer’s profit dropped 65% to $41 million, or 7 cents a share, for the period ended March 31, compared with $116 million, or 22 cents, for the year-ago period. Office Depot attributed the decline in profit to narrowed gross margins from store and supply chain cost deleverage, and higher selling, general and administrative expenses.

Excluding items, Office Depot reported an adjusted profit of 8 cents a share for the quarter, besting analysts' forecasts of 8 cents.

Sales rose 6% to a better-than-expected $2.83 billion from $2.68 billion. This compares with analysts forecasts of $2.72 billion.

Office Depot said its service revenues now make up approximately 14% of the company’s total sales, growing to $407 million from $216 million in the first quarter of 2017.

“I am extremely pleased that we continue to see positive momentum in our core businesses and delivered financial results in the first quarter which, although lower than the prior year, exceeded our recent outlook,” said Gerry Smith, CEO of Office Depot. “We achieved a major milestone this quarter with the Business Solutions Division reporting positive sales growth for the first time since 2012. This is largely driven by our focus on growing the customer base with our demand generation efforts and successfully expanding our offerings beyond office products.”

Citing its first quarter results, Office Depot increased its 2018 full-year outlook for sales, adjusted operating income and free cash flow. It now expects $10.8 billion in sales for the full year, up from its previous guidance of $10.6 billion. It also raised its adjusted operating income forecast by $10 million to $360 million and its free cash flow estimate by $25 million to $350 million.

“I am encouraged by the progress we’ve made so far this year to strengthen our core businesses and expand the service and subscription offerings to our B2B and business-minded customers,” said Smith. “Our strategic growth initiatives are gaining traction and we expect to continue building momentum throughout the year on this transformation journey to deliver long-term, sustainable growth.”
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