Office Depot’s emphasis on business services paying off

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Office Depot’s emphasis on business services paying off

By Marianne Wilson - 11/07/2018
Office Depot’s transformation from a traditional office supplies retailer to more of a business services company appears to be paying off as the company posted income and sales that topped estimates, fueled by big increases in its business solutions division and services divisions.

The office supplies retailer’s net income totaled $60 million, or 11 cents a share, in the third quarter, down from $92 million, or 18 cents a share, in the year-age period. Adjusted per-share earnings came to 13 cents, ahead of estimates of 12 cents.

Sales rose 10.2% to $2.887 billion, also better than expected. Product sales were up 1.1%, while service revenues grew 123.7%, driven primarily by the service revenues contributed by the CompuCom acquisition. Services revenue represented approximately 15% of total company sales, up from 7% last year.

“CompuCom’s unique capabilities are a competitive differentiator allowing us to grow our services business and to attract new customers and distribution partners,” said Gerry Smith, CEO of Office Depot.

Retail sales, however, continued to decline. Sales fell 6% to $1.3 billion in the quarter, which the chain attributed partially to planned store closures.

Office Depot raised its full-year sales guidance to $11.0 billion from $10.8 billion and reiterated its full-year 2019 sales guidance of $11.1 billion.

“We’re making excellent progress on our strategy and we have again delivered strong top line growth and generated significant free cash flow,” said Smith. “A primary focus during this phase of our transformation is to recapture top-line sales growth and strengthen our core, and I’m pleased to report that our Business Solutions Division delivered their best quarter in over a decade, with sales up 6% in total including recent acquisitions, and most importantly, up 1% organically.”

The retailer’s investments in building its services capabilities are also continuing to pay off, according to Smith, with service revenues again growing double digits in both its BSD and retail divisions.

“Overall, we are making great progress on our transformation and remain confident that we have the right strategy in place to drive sustainable, profitable growth in the future,” he said.

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