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Fall in revenues for Office Depot

May 9, 2019

Office Depot, Inc announced its results for the first quarter ended 30 March 2019.

Total reported sales for the first quarter 2019 were $2.8 billion (€2.5 billion), a decrease of 2 percent compared to the first quarter of 2018.

The company explained that the decrease in sales was the result of lower sales in its CompuCom and Retail divisions. Product sales in the first quarter were down 3 percent, while service revenues were flat, driven by a 13 percent and 16 percent year-on-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.

In the first quarter of 2019, Office Depot reported operating income of $24 million (€21.4 million), compared to $77 million (€68.8 million) in the prior year period. A primary driver in the reduction of operating income in the quarter was related to weaker performance at the Company’s CompuCom division.

Office Depot explains: “In addition, increases in paper and paper-related costs coupled with investments in the business platform to support future growth negatively impacted margins in its BSD division.”

The Retail Division reported sales were $1.2 billion (€1.07 billion) in the first quarter of 2019, down 6 percent versus 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 2019 as compared to the prior year, according to the company.

Comparable store sales were down by 4 percent driven by lower store traffic, partially offset by higher conversion rates and a 16 percent growth year-on-year in buy on-line, pick up in store sales.

Retail Division operating income was $67 million (€59.88 million) in the first quarter of 2019, compared to $72 million (€64.35 million) in the first quarter of 2018 on relatively consistent performance as a percentage of sales as compared to the first quarter of 2018.

Office Depot’s CompuCom Division operating loss was $15 million (€13.4 million) in the first quarter of 2019, compared to operating income of $5 million (€4.46 million) in the first quarter of 2018.

“Our first quarter results were disappointing driven primarily by poor performance at our CompuCom division,” said Gerry Smith, chief executive officer of Office Depot.

“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 percent and 16 percent, 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,” Smith continued.

 

“As a means to accelerate our transformation, enhance our profitability and fund future growth initiatives, our Board of Directors formally approved earlier this week our Business Acceleration Program. This is a company-wide, cost reduction and business improvement program that was developed to create a leaner and more competitive enterprise, driving down costs, improving service delivery, and providing additional means to fund reinvestment for future growth. The program initiatives are enterprise-wide and include implementing organizational realignments, leveraging the use of technology and automation in our facilities and offices, all 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,” he added.

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