Office Depot (ODP) Prelim. Q1 Revenue Misses Consensus

Office Depot, Inc. (“Office Depot,” or the “Company”) (NASDAQ: ODP), a leading integrated business-to-business (“B2B”) distribution platform of business services and supplies, products and technology solutions, today announced preliminary estimated results for the first quarter ended March 31, 2019. The Company will report actual financial results for the first quarter 2019 and provide updated full-year 2019 guidance on its upcoming earnings announcement and conference call scheduled for May 8, 2019.

For the first quarter of 2019, the Company expects to report revenue of approximately $2.76 billion and adjusted operating income1 of approximately $65 million. The primary driver of the anticipated first quarter 2019 results was lower than expected operating performance at the Company’s CompuCom division.

(**Street sees Q1 revenue of $2.82 billion)

The Company’s CompuCom division is expecting to report an operating loss of approximately $15 million in the first quarter of 2019, primarily driven by lower than expected revenue from existing customer projects compounded by less than commensurate reductions in associated expenses. Profitability was further pressured by ongoing expenditures to develop and market additional service offerings. The Company has recently undertaken several actions to improve its future operating performance. These include streamlining its operational structure to improve service velocity and efficiency, reorganizing its customer-facing organization to better align with customer needs, and realigning the sales team to more effectively identify new opportunities to increase penetration of existing customers and accelerate cross-selling opportunities. The Company expects that these and other actions will place CompuCom on a path to get back on track with its long-term expectations, delivering improved growth and profitability in the future.

The Company’s Business Solutions Division (“BSD”) is expecting to report operating income of approximately $46 million in the first quarter of 2019. This performance was impacted by paper and paper related costs increases that could not be completely passed through to customers due to the timing of contractual limitations. Paper costs have increased over 20% during the past 12 months and the Company is pursuing several initiatives to mitigate the impact of such cost increases going forward. In addition, lower eCommerce related sales coupled with investments in demand generation and eCommerce capabilities, including those associated with the collaboration agreement recently announced, adversely impacted results in the quarter.

The Company’s Retail division is expecting to report operating income of approximately $66 million in the first quarter of 2019. The Company’s success in growing its service offerings is mitigating some of the broader industry trends associated with more traditional office products. The Company is continuing to evaluate and implement additional initiatives in its retail footprint, improving conversion and product assortment mix, as well as exploring store-within-a-store and co-working opportunities, which to date have shown early signs of success.

(1) Adjusted Operating Income is a non-GAAP measure and excludes charges or credits not indicative of core operations and tax effects of these items, which may include but not be limited to merger integration, restructuring, acquisition, asset impairments and executive transition costs. The Company is unable to provide preliminary results for the comparable GAAP measure of operating income for the first quarter without unreasonable efforts because the exact amount of these charges or credits are not currently determinable until the closing procedures for the quarter are complete, but these charges or credits may be significant. Accordingly, the Company is unable to provide reconciliations from GAAP to non-GAAP for these financial measures without unreasonable effort, although it is important to note that these charges or credits could be material to Office Depot’s first quarter results in accordance with GAAP. Management believes that the presentation of the non-GAAP measure, Adjusted Operating Income, enhances the ability of investors to analyze trends in its business and provides a means to compare periods that may be affected by various items that might obscure trends or developments in the business.

“Despite the current challenges we are facing, we are confident that our transformation is on track to drive long-term value for our stakeholders,” said Gerry Smith, chief executive officer of Office Depot. “CompuCom’s operating performance was clearly disappointing and the actions we are taking to improve its operations and sales performance are expected to yield improving results in 2019. CompuCom is an important strategic asset for our future with approximately 6,000 certified technicians providing unique services capabilities, cross-selling opportunities, and partnering opportunities with some of the most highly regarded companies in the world.” Smith continued, “I am pleased with the actions we are taking across the business to position us for long term success. To ensure our success and to address potential headwinds, we are pursuing a company-wide profit improvement plan to further improve cost efficiencies throughout the entire organization. These initiatives include organizational improvements and leveraging the use of technology and automation in our facilities and offices.”

The Company will provide more details on its business performance and profit improvement initiatives, as well as updated guidance for 2019, in its upcoming earnings announcement and conference call scheduled for May 8, 2019. To listen to the conference call webcast, please visit the Office Depot Investor Relations website at investor.officedepot.com. A replay of the webcast and a copy of the presentation will also be available on the website.

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