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Services help fuel Office Depot Q4 growth; to add more co-working spaces

Office Depot’s increased emphasis on business services and solutions drove the chain’s revenue growth in the fourth quarter.

The company reported a loss of $14 million, or 2 cents a share, for the quarter ended Dec. 29, compared with a loss of $48 million, or 9 cents a share, in the year-ago period. The latest results included a $15 million loss related to refinancing a company loan. Adjusted fourth-quarter earnings came to 9 cents a share, beating analysts' expectations of 8 cents.

Sales rose 3% to $2.67 billion from $2.58 billion a year ago. Product sales in the fourth quarter were down 1%, while service revenues grew 34%, driven primarily by service revenue contributed by the partial inclusion of CompuCom divisional results and growth in the company’s business solutions division.

In the retail division, sales fell 6% to $1.1 billion and same-store sales fell 5%. (Office Depot said an accounting change in how it recognizes revenue affected overall sales.). The business solutions division’s sales rose 3% to $1.3 billion.

For the full year, sales totaled $11 billion, up from $10.24 billion in 2017. Net income was $99 million, or 18 cents a share, compared with $146 million, or 27 cents a share, a year ago. Looking ahead, the company forecast sales of about $11.1 billion for 2019.

Office Depot is in the midst of transforming itself into a business services company. On the company’s quarterly conference call with analysts, CEO Gerry Smith said that Office Depot would open co-working spaces in two new stores, in Chicago and Dallas, in March. It piloted the concept in August, at its store in Los Gatos, Calif.

"In the pivotal year of our transformation, we achieved our key priorities of recapturing top-line growth, expanding our distribution platform, growing our services business, generating significant free cash flow, and strengthening our balance sheet," stated CEO Gerry Smith. "The progress we've made in enhancing our platform throughout the year was driven by growth in our integrated B2B business and year-over-year trend improvements in our retail business, benefiting from a 24% increase in our buy on-line pick up in store sales."

During the fourth quarter, Office Depot opened one store, replaced one store, and closed 13 locations, ending the quarter with a total of 1,361 stores in the retail division.
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