Office Depot Stock Falls after Dismal Fiscal 4Q17 Results



Stock falls ~9%

Office Depot (ODP) announced its fiscal 4Q17[1.ended December 30, 2017] results on February 28, 2018. Its sales fell ~5.3% YoY (year-over-year) to $2.58 billion, missing analysts’ estimate of $2.61 billion. Its adjusted EPS (earnings per share) of $0.08 beat analysts’ estimate of $0.07 but fell 27.3% YoY.

Office Depot now expects to report combined company sales of $10.6 billion in fiscal 2018, compared with $10.2 billion in fiscal 2017. Management expects that strategic initiatives could help, though the company’s top line may still be impacted by earlier store closures and lower volumes.

Following the 4Q17 announcement, the stock fell 9.3% and closed at $2.63 on February 28, 2018. As of February 28, Office Depot’s stock price had fallen 25.7% this year. At the same time in 2017, the stock price had fallen 21.7%, whereas the S&P 500 (SPX-Index) had risen 19.4%.

In comparison, Best Buy (BBY) rose 60.5% and Genuine Parts (GPC) fell 0.6% in 2017. Best Buy had risen 5.8% this year to $72.44 as of February 28, 2018, while Genuine Parts had fallen 3.3% to $91.84.

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Office Depot’s strategic initiatives

Office Depot, to turn around its performance, merged with OfficeMax in 2013. Office Depot, under new CEO Gerry Smith, has embarked on an ambitious turnaround. The company is now transitioning from being an office supplies retailer to a service-focused company.

On November 8, 2017, Office Depot acquired CompuCom, a leading provider of managed IT (information technology) services, products, and solutions to small and medium-sized businesses. It has also launched BizBox, a business service platform for small businesses and startups. The company opened its first BizBox store in Austin, Texas, in January 2018.

Analysts’ ratings

Following the earnings announcement, of the eight analysts covering the stock, 63% recommended “hold,” 12% recommended “buy,” and the remaining ~25.0% recommended “sell.”

Jefferies has slashed its target price for Office Depot from $4.15 to $3. We are likely to see more price revisions in the coming days. In this series, we’ll analyze Office Depot’s results in depth.


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