Office Depot reported a sales decline in its first quarter ended March 30, 2019, and kicked off a business acceleration program to reduce costs and improve business operations.
Total sales for the first quarter 2019 were $2.8 billion, a decrease of 2% compared to the first quarter of 2018. The decrease in sales was the result of lower sales in its CompuCom and Retail divisions. Product sales in the first quarter were down 3%, while service revenues were flat.
Retail division sales were $1.2 billion in the first quarter of 2019, down 6% versus the prior year period. Planned closures of underperforming stores contributed to the reported decline as there were 17 fewer retail outlets at the end of the first quarter 2019 as compared to the prior year. Comparable store sales were down by 4% driven by lower store traffic, partially offset by higher conversion rates and a 16% growth year-over-year in buy on-line, pick up in store sales. Product sales in the quarter declined 8% compared to the prior period, primarily due to lower sales volume, while service revenue increased 16% compared to the prior year period.
Net income from continuing operations was $8 million in the first quarter, versus $33 million in the previous first quarter. Diluted earnings per share was $0.01 compared to $0.06 in last year’s first quarter. First quarter 2019 adjusted net income from continuing operations was $39 million, or $0.07 per diluted share, compared to an adjusted net income from continuing operations of $45 million, or $0.08 per diluted share, in the first quarter of 2018.
“Our first quarter results were disappointing driven primarily by poor performance at our CompuCom division,” said Gerry Smith, CEO of Office Depot. “We are taking decisive actions and making numerous improvements in our sales and operational processes to place this business back on-target with its long-term expectations. That said, our strategy remains compelling and we are steadfast in our plan to transform Office Depot into a leading provider of business products and services through our world-class integrated distribution platform. We delivered top-line results in our core Business Solutions and Retail divisions in-line with expectations, supported by strong service revenue growth of 13% and 16%, respectively, in these divisions. We also continued to make progress on additional transformation initiatives, including expanding the use of our supply chain with third parties and enhancing our retail footprint to include store-within-a store, co-working and expanded product offering pilots, as well as advancing our collaboration efforts with Alibaba.com.”
Smith continued, “As a means to accelerate our transformation, enhance our profitability and fund future growth initiatives, our board of directors formally approved earlier this week our Business Acceleration Program. This is a company-wide, cost reduction and business improvement program that was developed to create a leaner and more competitive enterprise, driving down costs, improving service delivery, and providing additional means to fund reinvestment for future growth. The program initiatives are enterprise-wide and include implementing organizational realignments, leveraging the use of technology and automation in our facilities and offices, all while reducing discretionary spending. We expect these actions will have a positive impact to our operations beginning in the second half of 2019, generating at least $40 million in savings this year and more than $100 million in annual savings at full run-rate.”