Office Depot on Wednesday reported first quarter revenue rose 6% to $2.83 billion, up from $2.68 billion in the year-ago quarter, beating the FactSet analyst estimate cited by Marketwatch for $2.72 billion. The company's service revenues now make up some 14% of total sales, the result of its CompuCom acquisition and a new focus on business services, according to a press release.
Retail sales in the quarter fell to $1.24 billion from $1.36 billion a year ago, in part due to store closures, as same-store sales declined 4%, primarily driven by fewer transactions and lower average order values, the company said.
Quarterly profit fell hard, tumbling 65% to $41 million or 7 cents per share from $116 million, or 22 cents per share, a year ago. Adjusted net income from continuing operations in the quarter tumbled to $45 million, or 8 cents per diluted share, from $88 million or 16 cents per diluted share, in the year-ago quarter. But that, too, beat expectations, leading the company to raise revenue guidance for its full fiscal year to $10.8 billion from previous guidance for $10.6 billion. Adjusted operating income is now expected to land at $360 million, $10 million above its previous guidance, the company said.
Office Depot is still in a transition year, executing a pivot to more business services amid a challenged retail sales environment for office supplies. Last October the company splurged a billion dollars on IT provider CompuCom Systems and since then has introduced a "BizBox" subscription that is stuffed more with services than actual supplies.
The pivot is showing up in its marketing, with online traffic up 9% and loyalty enrollment up 27%, according to an email to Retail Dive.
The investments and transitions vacuumed up some profits, but the new strategy is seeing traction, according to CEO Gerry Smith. "We achieved a major milestone this quarter with the Business Solutions Division reporting positive sales growth for the first time since 2012," he said in a statement on Wednesday, noting strong cash flows in the quarter. "This is largely driven by our focus on growing the customer base with our demand generation efforts and successfully expanding our offerings beyond office products. When combined with CompuCom, these business-to-business (B2B) focused divisions represent nearly 60% of total sales."
But the company also said it's "committed to retail" and noted just two store closures in the quarter, according to the email, despite competition with Staples and Amazon's business-to-business retail efforts, an area thought to be more protected than the retailers' consumer retail sales.