Office Depot Q1 earnings, sales fall; lowers outlook, announces cost cuts

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Office Depot Q1 earnings, sales fall; lowers outlook, announces cost cuts

By Marianne Wilson - 05/08/2019
Office Depot did not come running out of the gate in its first quarter as its transformation into a more business services-oriented company hit some roadblocks.

Earnings totaled $8 million, or $0.01 per share, in the quarter ended March 31, versus $41 million in the year-ago period. Earnings adjusted for restructuring costs came to $0.7 cents per share, better than the $0.6 per share analysts had expected.

Total revenue decreased 2% to $2.77 billion, which the office supply and services retailer attributed to disappointing sales in its product division, where sales fell 3%, and retail division, where sales fell 6%. Service revenues were flat. Retail division operating income fell to $67 million from $72 million a year ago; same-store sales fell 4%.

“Our first quarter results were disappointing, driven primarily by poor performance at our CompuCom division,” said Smith. CompuCom, which Office Depot acquired in 2017 for $1 billion, is crucial to Smith's strategy to turn Office Depot into a services company for business.

Smith said the company is taking “decisive actions and making numerous improvements in our sales and operational processes to place this business back on-target with its long-term expectations.”

“That said, our strategy remains compelling and we are steadfast in our plan to transform Office Depot into a leading provider of business products and services through our world-class integrated distribution platform,” he added.

Office Depot said it is embarking on a cost reduction and business improvement program to create a leaner and more competitive enterprise, drive down costs, improve service delivery, and provide additional means to fund reinvestment for future growth. The program includes store footprint “optimization,” organizational realignments and leverages the use of technology and automation, while reducing discretionary spending.

“We expect these actions will have a positive impact to our operations beginning in the second half of 2019, generating at least $40 million in savings this year and more than $100 million in annual savings at full run-rate,” Smith said.

On a call with analysts, Smith said that Office Depot will expand its collaboration with Alibaba. He also said the chain will close more stores this year compared to last, when it shuttered 19 locations. (In April, Business Insider reported that Office Depot plans to close 50 stores this year as part of a three-year plan announced in 2016 to shutter roughly 300 stores.). During the first quarter, Office Depot closed two stores, giving it a total of 1,359 stores.

The company lowered its guidance for the year. It now expects sales to fall between $10.8 billion to $10.9 billion, down from the previous guidance for $11.1 billion. Adjusted operating income was put at $325 million to $350 million, from $375 million previously.

The results exceeded Wall Street expectations. The average estimate of three analysts surveyed by Zacks Investment Research was for earnings of 6 cents per share.

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