Is Office Depot Finally Back on Track?

Office Depot Inc. (NASDAQ: ODP) released its first-quarter financial results before the markets opened on Wednesday. The company posted $0.07 in earnings per share (EPS) and $2.77 billion in revenue, compared with consensus estimates that called for $0.07 in EPS and $2.76 billion in revenue. The same period of last year reportedly had EPS of $0.08 on $2.83 billion in revenue.

Overall, total sales decreased about 2% year over year. The decrease in sales was the result of lower sales in its CompuCom and Retail divisions. At the same time, product sales were down 3%, while service revenues were flat, driven by a 13% and 16% year-over-year increase in service revenue in the company’s BSD and Retail divisions, respectively, effectively offset by lower service-related revenue at its CompuCom division.

The Retail Division reported sales were $1.2 billion, down 6% from the prior year period. Planned closures of underperforming stores contributed to the reported decline as there were 17 fewer retail outlets at the end of the first quarter of 2019 as compared to the prior year. Comparable store sales were down by 4%, driven by lower store traffic.

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Looking ahead to the 2019 full year, the company expects to see revenues in the range of $10.8 billion to $10.9 billion with EBITDA of $525 million to $550 million. Consensus estimates call for $0.32 in EPS and $10.9 billion in revenue for the year.

Gerry Smith, CEO of Office Depot, commented:

We are 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. We delivered top-line results in our core BSD and Retail divisions in-line with expectations, supported by strong service revenue growth of 13% and 16%, respectively, in these divisions. We also continued to make progress on additional transformation initiatives, including expanding the use of our supply chain with third parties and enhancing our retail footprint to include store-within-a store, co-working and expanded product offering pilots, as well as advancing our collaboration efforts with Alibaba.com.

Shares of Office Depot closed Tuesday at $2.24, in a 52-week range of $2.08 to $3.82. The consensus price target is $3.27. Following the announcement, the stock was up about 5% at $2.36 in early trading indications Wednesday.

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