Office Depot Q2 profit misses amid sales decline

Weak sales made for a rough second quarter for Office Depot.



The retailer said its profit fell to $24 million, or 5 cents a share, short of Wall Street expectations, compared with $210 million, or 38 cents a share, in the year-ago period. (The 2016 quarter included a $250 million fee paid by Staples to Office Depot after Staples abandoned its intent to acquire its rival.)



Total sales declined 9% to $2.4 billion, also less than expected, compared to $2.6 billion in the year-ago period. Retail division sales were $1.1 billion in the quarter, down from $1.2 billion in the prior year period.



Office Depot attributed the decline in retail sales to the impact of planned store closures over the past twelve months and a 6% decline in comparable store sales due primarily to lower store traffic and average order value of purchases.



The company said it closed 31 stores during the quarter, ending with a total of 1,408. For 2017, 75 stores are scheduled to close. (As announced last year, Office Depot expects to close 300 stores over the next three years.)



Office Depot said its adjusted operating income for the first half of the year was on target at $220 million, versus $202 million in the first half of 2016



“We continue to build our capabilities across the organization as we focus on driving the omnichannel growth opportunities we have identified in the North American market,” said Gerry Smith, chief executive officer of Office Depot. “I’m pleased that we have delivered year to date adjusted operating income that is ahead of the prior year and we remain on track to achieve our full year target. Longer term, we are maintaining our focus on executing initiatives to strengthen our existing business, expanding our last-mile advantage, while evaluating opportunities to transform the company for future growth.”



During the second quarter, the company completed the sale of its business in South Korea. As announced on June 2, 2017, it also reached an agreement during the quarter to sell its business in mainland China, with that sale being finalized on July 28, 2017.



In addition, the company also announced on April 18, 2017, that it had entered into a definitive sale and purchase agreement related to the company’s operations in Australia and New Zealand.



Office Depot continues to expect total company sales in 2017 to be lower than 2016, primarily due to the impact of planned store closures, prior year contract customer losses, continued challenging market conditions and returning to a 52-week fiscal year. However, the company expects the rate of sales decline to improve in the second half of 2017 based on improvements in customer retention, implementation of new customer wins and growth from strategic business initiatives.