What’s restricting sales growth?
Office Depot (ODP) is facing two major problems. First, the company’s top line has been negatively impacted by the shift to digital, which has made most paper-based traditional office supplies unnecessary. Second, the arrival of online retailers such as Amazon (AMZN) and competitive pricing have added to its woes.
The company’s store closings are also leading to deflated sales numbers along with lower volumes. In fiscal 2017, sales fell 7.1% on a YoY (year-over-year) basis.
What’s in store for fiscal 2018?
For fiscal 2018, Office Depot management has projected a 5% decline in sales to $10.6 billion on a pro forma basis, primarily due to continued struggles in the retail division. The division accounted for 48.5% of its total sales in fiscal 2017. Previous store closures and new revenue recognition practices could also impact its top-line numbers.
To improve the performance of its retail division, management has taken on several growth initiatives. They include a nationwide rollout of subscription-based services, expansion of its BizBox service, and a focus on generating digital demand.
However, sales for its Business Solutions division and CompuCom continue to stabilize and could be almost the same as fiscal 2017. In fiscal 2017, its Business Solutions division contributed 49.9% to overall sales, while CompuCom contributed 1.5%.
Management stated that in the first quarter of 2018, the company usually earns 24%–26% of its total sales for the year. However, for fiscal 1Q18, management expects sales to be at the lower end of that range as gains from strategic initiatives will mostly be realized in the latter half of the year.
Expectations for peers
For fiscal 2019, Best Buy (BBY) could likely report revenue of $41.8 billion, representing a ~1% decline from fiscal 2018. The company has projected its enterprise revenue to be $41 billion–$42 billion. The year will be impacted because of one less week. The 53rd week in fiscal 2018 added $760 million in revenue.
For 2018, analysts project Genuine Parts (GPC) to report a 12.3% growth in sales to $18.3 billion. Management has put sales growth for 2018 at 12%–13% compared to 2017.