Office Depot reports strong Q1; adopts poison pill
Office Depot Inc. came fast out of the gate in its first quarter, with increased demand for its goods and services amid COVID-19. But it isn’t taking any chances.
After reporting earnings and revenue that topped analysts expectations, the office supplies and services retailer announced that it has adopted a limited duration shareholder rights plan, or poison pill, to block any party from taking advantage of a falling share price to build a stake in the company amid the pandemic. Office Depot noted that the plan has not been adopted in response to any specific takeover bid or other proposal to acquire control of the company.
With its stores largely remaining open during the health crisis, Office Depot said its ability to continue to serve customers during the pandemic helped drive strong operating results and generate $188 million in operating cash flow including $173 million in adjusted free cash flow.
“This strong performance resulted in our highest net cash position in over 2 years and nearly $1.7 billion in total available liquidity,” said CEO Gerry Smith.
Office Depot’s net income totaled $45 million, or $0.8 a share, in the quarter ended March 30, up from $8 million, or $0.1 a share, in the year-ago period. Adjusted per-share came to $0.12, topping the $0.7 analysts had expected.
Same-store sales rose 2% in the quarter and e-commerce sales saw a strong jump in demand
Sales fell 2% to $2.725 billion, but beat estimates for $2.680 billion. The company attributed the decline primarily to lower sales in the retail division amid fewer retail stores in service, which was partially offset by higher same-store sales, combined with lower sales in its CompuCom division and business solutions division, largely driven by impacts related to the COVID-19 outbreak
“Our B2B focus is helping businesses remain operational in the home or at the office, our facilities have largely remained open serving customers with enhanced sanitation and safety protocols, and our e-commerce platform and retail stores are proving to be trusted means for customers to access the critical products and services they need,” Smith said. “While significant challenges remain ahead, we are in a strong financial position and remain focused on utilizing our B2B platform to provide essential products and services necessary to help our customers and the nation weather through this pandemic.”
Similar to many companies, Office Depot is withdrawing its 2020 guidance given the uncertainty around the pandemic and is suspending temporarily its share buybacks and dividend payments.
“We are implementing several strategies to address and hopefully mitigate these challenges including utilizing our global sourcing capabilities to secure additional sources of essential products and supplies, including PPE, and providing technology support, facilitating work from home and virtual learning environments, and continuing efforts to drive a low cost business model,” Smith said. “Combined with our strong balance sheet and available liquidity position, we are in a solid position to navigate the challenges posed by this health crisis.”