Office Depot on Wednesday said that second quarter revenue fell 2% year over year to $2.6 billion, which was "the result of lower sales in the Retail division, primarily driven by lower same store sales combined with fewer retail stores, and lower sales in the CompuCom division." The decline was partially offset by stronger sales in the business solutions division, according to a company press release.
Product sales in the quarter fell 1% relative to the prior year period, and service revenue fell 6%, the company also said. Store comps fell 4%. Service comps rose about 12% in the retail division, and, on a consolidated basis, service revenue represented about 16% of total sales in the quarter.
The company reported an operating loss of $15 million, down from operating income of $48 million in the prior-year period, mostly driven by a $55 million increase in merger and restructuring costs. Net loss from continuing operations reached $24 million from net income of $19 million a year ago.
The investments required by Office Depot's renovation from a big-box office supplies specialty retailer to a more high-touch, well-rounded, business-oriented company continue to take their toll on the bottom line. But the company did better than many analysts expected in the second quarter, and in his statement on Wednesday, CEO Gerry Smith seemed pleased with the performance.
"This quarter was a compelling demonstration of how we are implementing our strategy and utilizing our B2B platform to serve our business customers," he said. "Our strategic focus on our B2B businesses, which consists of our BSD and CompuCom divisions, generated over 60% of our revenue and over 90% of our division level operating income in the second quarter."
Store sales of office supplies are unlikely to cut it in a world where such basic merchandise, from paper to machines, is essentially a commodity that can be purchased online from several outlets, including Amazon. A key question before Office Depot these days is less whether its business services can be a revenue winner and more what role their stores continue to play. Office Depot said it closed 39 stores during the second quarter, ending up with 1,320 stores in its retail division — 54 fewer than last year.
That hurt the top line, though it's hard to argue with the tactic. The store comp decline was due to lower traffic, and product sales in the quarter fell 7% year over year, primarily due to lower sales volume, the company said. Service revenue, meanwhile, rose by 7% in that time. And the traffic decline was partially offset by higher conversion rates, higher sales per customer, 17% growth in buy online, pickup in-store (BOPIS) sales and increased loyalty program membership. Services are also boosting stores, with service revenue there rising by about 12%, driven by an expansion of copy and print services, subscription volume and technology services, according to the company's release.