uploads/2018/03/ODP-2-1.png

Why Office Depot’s Fiscal 4Q17 Sales Disappointed

By

Updated

Quarterly revenue

On February 28, 2018, Office Depot (ODP) reported its fiscal 4Q17[1.ended December 30, 2017] results. The company had sales of $2.58 billion, missing analysts’ estimate of $2.61 billion and marking a 5.3% fall YoY (year-over-year). Both its Retail and Business Solutions segments witnessed lower transaction volumes, dragging down their top line.

On an adjusted basis (excluding the effects of foreign currency headwinds, domestic store closures, the CompuCom acquisition, and a 53rd week in 2016), sales were down 4% in 4Q17.

Article continues below advertisement

Segment-wise performance in 4Q17

Between fiscal 4Q16 and 4Q17, the Retail segment’s sales fell 14.8% to $1.2 billion, while comparable store sales fell 4%. In addition to lower transaction volumes, lower order values also added to the company’s woes. Office Depot shut down 26 stores in fiscal 4Q17, bringing its store count to 1,378 as of December 30, 2017.

Business Solutions sales fell 7.2% to $1.3 billion in fiscal 4Q17. Factors impacting the segment’s top line in fiscal 4Q17 included reduced average sales volumes and holiday calendar changes.

CompuCom, acquired by Office Depot on November 8, 2017, saw sales of $156 million. The company’s Other segment, which mostly constitutes its Asia operations, reported sales of $4 million.

Outlook

The arrival of Amazon (AMZN) and shift away from paper-based supplies has made it tough for office supply retailers to retain market share. Office Depot has now embarked on becoming a business service-focused company. The company has acquired CompuCom, launched an in-house service platform, BizBox, and is concentrating on subscription-based services. However, its investments may weigh down on its profits and bottom line in the near term.

In fiscal 2018, the company expects to report consolidated sales of $10.6 billion, compared with $10.2 billion in fiscal 2017. Its sales are likely to be impacted by store closures and lower volumes. New revenue recognition practices are expected to impact its top line by $60 million. However, the company’s efforts to become a service-oriented company should drive sales in the long term while providing some near-term cushioning.

Advertisement

More From Market Realist