Office Depot's back-to-business approach pays off
Office Depot on Tuesday reported that second quarter sales rose 11% to $2.6 billion, up from $2.4 billion in the year-ago quarter. Adjusted operating income in the quarter was flat year over year at $63 million, while adjusted net income from continuing operations was $30 million, down from $34 million in the year-ago quarter, according to a company press release.
The retail division reported that sales fell 5% to $1.1 billion in the quarter, including an approximate $10 million negative impact to revenue from the adoption of the new revenue recognition standard. Product sales fell 7%, while services revenue rose 12% year over year. Comparable sales fell 2%, primarily driven by fewer transactions and lower average order values, a sequential quarterly improvement of some 200 basis points compared to last quarter, the company said.
Sales at the business solutions division rose 4% from the year-ago quarter to $1.3 billion, including the impact of acquisitions and e-commerce growth, the company also said. Without the impact of acquisitions, sales were about flat, reflecting a sequential quarterly improvement of some 300 basis points from last quarter, driven by growth in core supplies and services. Business solutions product sales in the quarter rose 3%, while services revenue rose 15% year over year, the company said.
Office Depot beat most analyst estimates of overall second-quarter profit and sales, but there's a notable shift in where its strength lies. The retailer is solidifying its pivot to a business-solutions focus, and perhaps in the nick of time, with Amazon poised to grab more consumer office supplies and back-to-school sales.
"Amazon is making a major push into the B2S/B2C [back-to-school/back-to-college] arena with dedicated deals and pages. Amazon Prime Day is somewhat strategically located [a]head of school starts across the South and has made it easy for Prime members to fill their B2S needs at Amazon.com instead of traditional locations such as Walmart, Target, Staples, Office Depot, Dollar General, Kohl's, Costco, among other teen apparel retailers," Retail Metrics President Ken Perkins said in comments emailed to Retail Dive.
Office Depot CEO Gerry Smith touted the company's "impressive 4%" growth in its business solutions unit, which got a big boost from its acquisition of CompuCom last year, along with its ongoing cost-cutting efforts. "I'm also encouraged by the early success of our initiatives to increase services, which now represent 16% of total sales," he also said in a statement.
The company closed two more stores in the quarter, according to its press release, for a total of four closures this year and total remaining retail operations of 1,374 retail stores plus its retail website. Office Depot maintained the full-year guidance it articulated last quarter, for sales of about $10.8 billion, adjusted operating income of $360 million and free cash flow of $350 million.
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