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Office Depot announces preliminary financials

April 5, 2019

The American B2B distribution platform of business services and supplies, products and technology solutions, has announced its preliminary estimated results for Q1 of the current financial year, ended March 31 2019.

For the first quarter of 2019, the Company expects to report revenue of approximately $2.76 billion (€2.46 billion) and adjusted operating income of approximately $65 million (€57.88 million). The primary driver of the anticipated first quarter 2019 results was “lower than expected operating performance at the Company’s CompuCom division,” according to Office Depot.

The CompuCom division is expecting to report an operating loss of approximately $15 million (€13.35 million) in the first quarter of 2019, primarily driven by “lower than expected revenue from existing customer projects, compounded by less than commensurate reductions in associated expenses.”

Profitability was further pressured by ongoing expenditures to develop and market additional service offerings. Office Depot has recently undertaken several actions to improve its future operating performance, including: Streamlining its operational structure to improve service velocity and efficiency; reorganising its customer-facing organisation to better align with customer needs; and realigning the sales team to more effectively identify new opportunities to increase penetration of existing customers and accelerate cross-selling opportunities.

The company expects that these and other actions will place CompuCom on a path to get back on track with its long-term expectations, delivering improved growth and profitability in the future.

Office Depot’s Business Solutions Division, meanwhile, is expecting to report operating income of approximately $46 million (€40.96 million) in the first quarter of 2019. This performance was reportedly impacted by paper and paper related costs increases that “could not be completely passed through to customers due to the timing of contractual limitations.” Paper costs have increased over 20 percent during the past 12 months, and Office Depot is pursuing several initiatives to mitigate the impact of such cost increases going forward. In addition, lower eCommerce related sales coupled with investments in demand generation and eCommerce capabilities, including those associated with the collaboration agreement recently announced, adversely impacted results in the quarter.

Furthermore, the company’s Retail division is expecting to report operating income of approximately $66 million (€58.77 million) in the first quarter of 2019. “Office Depot’s success in growing its service offerings is mitigating some of the broader industry trends associated with more traditional office products,” the company said.

The company is also continuing to evaluate and implement additional initiatives in its retail footprint, improving conversion and product assortment mix, as well as exploring store-within-a-store and co-working opportunities, which to date have shown early signs of success.

 “Despite the current challenges we are facing, we are confident that our transformation is on track to drive long-term value for our stakeholders,” said Gerry Smith, Office Depot CEO. “CompuCom’s operating performance was clearly disappointing and the actions we are taking to improve its operations and sales performance are expected to yield improving results in 2019. CompuCom is an important strategic asset for our future with approximately 6,000 certified technicians providing unique services capabilities, cross-selling opportunities, and partnering opportunities with some of the most highly regarded companies in the world.” Smith continued, “I am pleased with the actions we are taking across the business to position us for long term success. To ensure our success and to address potential headwinds, we are pursuing a company-wide profit improvement plan to further improve cost efficiencies throughout the entire organisation. These initiatives include organisational improvements and leveraging the use of technology and automation in our facilities and offices.”

The Company will report actual financial results for the first quarter 2019 and provide updated full-year 2019 guidance on its upcoming earnings announcement and conference call scheduled for May 8, 2019.

 

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