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Office Depot’s Bottom Line Falls 27.3% in Fiscal 4Q17

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Adjusted earnings fall 27.3%

In fiscal 4Q17, Office Depot (ODP) had adjusted EPS (earnings per share) of $0.08, which came better than the analysts’ projection of $0.07 but fell 27.3% YoY (year-over-year).

The company reported EPS from continuing operations of -$0.09 in fiscal 4Q17, compared with $0.10 in fiscal 4Q16. A net tax expense of $68 million related to tax reform impacted its bottom line. The company repurchased 6 million shares worth $22 million in fiscal 4Q17, and $56 million in shares in fiscal 2017.

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What lies ahead?

Declining sales, a tough retail backdrop, and ongoing investments are making things tough for Office Depot. The company is divesting its international operations to focus on core operations. It has divested its South Korean, Mainland China, and European operations, leaving its New Zealand operations left to divest.

However, the company has announced that it will now reduce the number of stores to be closed—a reduced store footprint would hinder its omnichannel growth strategy. The company clarified that none of its cost-saving programs are likely to add materially to results going forward. This move could impact the company’s profitability and bottom line.

In fiscal 2018, the company expects its adjusted EPS to fall to $0.30, down 33.3% YoY. Office Depot’s effective tax rate is likely to be ~31%.

Peer performance

In fiscal 4Q18, Best Buy (BBY) reported adjusted EPS of $2.42, topping analysts’ estimate of $2.04 and increasing over 25% YoY. The company’s bottom line benefited from a lower adjusted effective tax rate, share repurchases, and higher sales.

Genuine Parts’ (GPC) adjusted EPS of $1.12 beat analysts’ expectation of $1.09, marking a 9.8% rise YoY in 4Q17. Increasing sales and operating profits gave a much-needed boost to its bottom line. The company’s recently concluded acquisition of Alliance Automotive Group contributed $0.07 to its adjusted EPS in 4Q17.

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