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Office Depot Drives Sales Growth In Q4

In the fourth quarter of 2018, as it sought traction on major retail and service initiatives designed to give the business momentum, Office Depot reported sales growth and a smaller net loss.

The retailer recorded a net loss from continuing operations of $14 million, or two-cents per share, versus a loss of $48 million, or nine cents per share, in the fourth quarter of 2017. Adjusted net income from continuing operations was $52 million, or nine cents per diluted share, versus $45 million, or eight cents per diluted share, in the 2017 fourth quarter. Office Depot’s adjusted earnings per share beat a Zacks Investment Research analyst consensus estimate by a penny.

Office Depot posted total sales of $2.67 billion compared to $2.58 billion in the 2017 period. Product sales in the fourth quarter slipped 1% in the quarter year over year to $2.25 billion while service revenues grew 34% to $420 million driven primarily by service revenue contributed by the partial inclusion of the recently acquired CompuCom business results and growth in the company’s BSD division. 

Operating income was $24 million versus $56 million in the previous-year period. Fourth quarter 2018 operating income results included a $25 million legal expense accrual related to a proposed settlement with the United States Federal Trade Commission regarding the company’s use of a third-party software product, as well as costs associated with investments in the business platform to support future growth.

In the Office Depot retail division, sales were $1.09 billion, down 6% versus the prior-year period. Planned underperforming store closures and an approximately $10 million negative impact to revenue resulting from the adoption of a new revenue recognition standard contributed to the decline. Comparable store sales slipped 5% in the quarter year over year. In comparison to the year-earlier period, retail product sales declined 8% primarily due to lower sales volume and service revenue increased 18%.

For the full year, Office Depot recorded net income from continuing operations of $99 million, or 18 cents per share, versus $146 million, or 27 cents per share, in 2017. Adjusted net income from continuing operations was $199 million, or 35 cents per diluted share, versus $241 million, or 45 cents per diluted share, in the 2017 fiscal year. 

Office Depot posted full year total sales of $11.02 billion, up 8% over the year-before period, with product sales flat and services sales growing 84% over last year, driven largely by the inclusion of CompuCom. Operating income was $254 million versus $327 million in the previous year. 

“In the pivotal year of our transformation, we achieved our key priorities of recapturing top-line growth, expanding our distribution platform, growing our services business, generating significant free cash flow and strengthening our balance sheet,” said Gerry Smith, Office Depot CEO. “The progress we’ve made in enhancing our platform throughout the year was driven by growth in our integrated B2B business and year-over-year trend improvements in our retail business, benefitting from a 24% increase in our buy online pick up in store sales. We increased our reach to the nearly 29 million customers we serve today, including approximately 10 million small and medium businesses. We invested in and expanded our distribution network, upgraded the technology in our stores and improved our online and mobile experience. We also made significant progress in integrating CompuCom into our service offerings.”