Store Sales Drop 4% in Q4 of 2017

Originally written by Joshua Allsopp and published at opi.net

Office Depot Plans More Services-based Expansion

Office Depot’s Q4 results and end-of-year report revealed more about its planned shift towards business services.

However, investors were unimpressed with the group’s sales figures as shares fell more than 10% after the opening bell.

For the three months ended 30 December 2017, sales were down 5% to $2.6 billion. Adjusted operating profit decreased by 1% at $95 billion, excluding the impact of a one-off tax expense.

Comparable store sales in the Retail division declined 4% in Q4 to $1.164 billion, with operating profit down 35% to $40 million due to weaker margins. The group closed 26 stores during the quarter, ending 2017 with a total of 1,378 locations and this number is unlikely to change any time soon.

CEO Gerry Smith commented: “Office Depot has decided to significantly slow the pace of future store closures. As a result, the company believes it is now complete with the prior cost savings programmes and does not expect material additional benefits from these programmes to be realised in 2018.”

Elsewhere, the Business Solutions segment reported Q4 sales of $1.3 billion, 7% lower than the same period the previous year. Excluding the impact of one additional selling week in 2016, Q4 2017 sales in this channel were down 3% in constant currency, representing a sequential improvement of around 150 basis points.

The decline was attributed to lower volume, a shift in the holiday season calendar and the impact of sales from omnichannel programmes that are recorded as part of the Retail division. Operating profit was 9% lower at $68 million.

Smith noted: “Sales trends in the Business Solutions division continued to improve and we also saw relative improvement in store traffic recently as a result of strategic shifts in our offer and marketing mix. We are encouraged to see our initiatives to transform the company beginning to gain traction, including our ability to generate free cash flow to fund these future growth engines.”

Depot’s CompuCom acquisition – completed in Q4 – also recorded sales of $156 million during the period, with operating profit of $8 million.

Overall, FY2017 sales for Depot declined 7% to $10.24 billion, while adjusted operating profit fell 2% to $446 million.

Hinting at the group’s strategy to shift away from retail, Smith stated: “We remain intensely focused on profitably growing Office Depot with a deliberate shift to a more services-oriented revenue base.”

He said Depot was accelerating a number of initiatives to drive this transformation, including the planned expansion of the CompuCom technology services footprint, rolling out the BizBox services platform and offering new subscription-based services.

The group closed on the sale of its OfficeMax business in Australia earlier this month and clocked $53 million in merger-related costs. The sale of the remaining discontinued operation in New Zealand remains subject to obtaining necessary regulatory approvals, it added.