Office Depot shares increased as much as 15% Thursday after the office supplies retailer announced an aggressive cost-cutting effort that includes closing 300 stores over three years, including 65 locations in the fourth quarter, as well as the sale of its international businesses.
Office Depot bested third quarter expectations with earnings of 16 cents per share, topping analysts' estimates of 15 cents per share. Revenue decreased 7% from the same quarter last year from $3 billion to $2.84 billion, however, missing Wall Street's estimates for $3.49 billion.
Total adjusted sales slipped 4% compared to the prior-year quarter, and same-store sales declined 2% on lower transaction counts. For the fourth quarter, Office Depot said it expects total revenue to fall shy of the $3.48 billion recorded in Q4 2015, missing expectations for revenue of $3.44 billion.
In August, three months after its proposed $6.3 billion merger with rival Staples fell apart, Office Depot announced the departure of CEO Roland Smith and touted the completion of a three-year turnaround plan with four major elements: Accelerating business contracts operations, revamping its North American retail model, cost reductions and returning capital to shareholders.
Office Depot in September announced an agreement to sell its European business to investment firm The Aurelius Group, and now its turning its focus to store closure efforts. The 300 closings mentioned in its Q3 earnings report, first announced in August, are on top of 400 closures already planned since 2014.
While the plan to merge with rival Staples would have created an international office supply juggernaut with an impressive brick-and-mortar presence to neutralize the growing threat posed by online competition, Staples and Office Depot are now once again rivals, each scrambling to figure out what comes next. On a conference call with analysts Wednesday, though, Smith insisted that its plans are clear and reiterated a strategy to build business contracts sales and streamline its supply chain in the name of “optimizing and reinventing retail.”
“We believe there are significant additional opportunities to transition to a more effective sales coverage model for accounts of all sizes by balancing the benefits of an inside and outside sales coverage model,” Smith said, according to a Seeking Alpha transcript. “We are pleased with our initial progress in these areas and expect the sales trends in our Business Solutions Division to improve in the coming quarters as we continue to grow our sales pipeline and convert customer commitments into revenue and profit.”
Office Depot closed seven stores during the third quarter, and plans to close approximately 125 stores by the end of this calendar year (a reduction of about 2.8 million square feet of retail space), including the 65 targeted for extinction during the current quarter.
"In addition to the store closure program, we are also optimizing the retail operating model inside the store to make it simpler and more efficient," Smith said, explaining that Office Depot is implementing a new workforce management tool enabling the company to evaluate each individual store and recommend the optimum labor scheduled for that location. "The tool will enable us to allocate labor needs more efficiently based on customer demand," Smith said. "In conjunction with the workforce tool rollout, we are streamlining and optimizing store tasks such as price changes and restocking, and this will allow our associates to spend more time selling to customers."