Office Depot, Inc. omni-channel provider of business services and supplies, products and technology solutions, has announced results for the first quarter which ended 31 March 2018.
“I am extremely pleased that we continue to see positive momentum in our core businesses and delivered financial results in the first quarter which, although lower than the prior year, exceeded our recent outlook,” said Gerry Smith, Chief Executive Officer of Office Depot.
“We achieved a major milestone this quarter with the Business Solutions Division reporting positive sales growth for the first time since 2012. 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 percent of total sales. I’m also pleased that our continued focus on working capital management allowed us to generate strong cash flows in the quarter, which further strengthens our liquidity and provides additional capital to strengthen our operations and invest in growth initiatives.”
Total reported sales for the first quarter of 2018 were $2.8 billion (€2.3 billion) compared to $2.7 billion (€2.2 billion) in the first quarter of 2017, an increase of 6 percent. As a result of the CompuCom acquisition and focus on growing services revenue, the company has enhanced its disclosure to report the breakdown between product sales and service revenues. Office Depot’s service revenues now make up approximately 14 percent of the company’s total sales.
In the first quarter of 2018, Office Depot reported operating income of $77 million (€64.8 million) and net income from continuing operations was $33 million (€27.7 million), compared to operating income of $124 million (€104.3 million), net income from continuing operations of $74 million (€62.3 million) in the first quarter of 2017. The decrease was primarily due to lower gross margins from store and supply chain cost deleverage as well as higher selling, general and administrative expenses.
Business Solutions Division reported sales were $1.3 billion (€1.09 billion) in the first quarter of 2018, up 1 percent compared to the first quarter of 2017. This is a quarterly sequential improvement of approximately 400 basis points and returns the division to positive sales growth. The favourable sales performance was primarily driven by growth initiatives in adjacency categories, online sales and acquisitions.
Retail Division reported sales were $1.2 billion (€1.01 billion) in the first quarter of 2018. Planned store closures and an approximately $30 million (€25.2 million) negative impact to revenue resulting from the adoption of the new revenue recognition standard contributed to the decline. Comparable sales declined 4 percent versus the prior year primarily driven by fewer transactions and lower average order values.
“I am encouraged by the progress we’ve made so far this year to strengthen our core businesses and expand the service and subscription offerings to our B2B and business-minded customers,” said Gerry Smith. “Our strategic growth initiatives are gaining traction and we expect to continue building momentum throughout the year on this transformation journey to deliver long-term, sustainable growth.”
Due to the favourable results achieved in the first quarter of 2018, the Company is increasing its 2018 full-year outlook for sales, adjusted operating income and free cash flow.
