Office Depot Q1 Sales Down, Net Income Rises

First quarter sales at Office Depot were down but the company reported growth in net income and earnings per share.

For the three months ended April 1, company-wide sales were $2.7 billion, down 7% when compared to the same quarter in 2016. Net income from continuing operations was $74 million, or $0.14 per share, compared to net income of $62 million, or $0.11 per share, in the first quarter of 2016.

“I am very pleased that we continued our positive momentum into the new year and delivered a strong earnings performance in the first quarter,” said Gerry Smith, chief executive officer of Office Depot. “Going forward, our focus is on executing against our strategic initiatives to grow the North American business.”

North American retail division sales were $1.4 billion in the first quarter of 2017 compared to $1.5 billion in the prior year period. The decline in sales was due to the impact of planned store closures over the past 12 months and a 5% decline in comparable store sales in the quarter versus the prior year due primarily to lower store traffic, the company said.

Operating income for the division was $112 million, or 8.2% of sales, in the first quarter of 2017, compared to $102 million, or 6.8% of sales, in the first quarter of 2016. Both operating income and margins for the quarter increased versus the prior year, despite lower sales, due primarily to cost savings and efficiencies realized from the company’s store closure program and comprehensive business review, the company said.

During the first quarter, the company closed two stores and ended the quarter with a total of 1,439 retail stores in the North American retail division.

Business solutions division sales were $1.3 billion in the first quarter of 2017, a decline of 4% compared to the first quarter of 2016. The sales decline was driven by the contract channel as sales in the direct channel were approximately flat compared to the prior year period.

The sales decline in the contract channel was primarily due to customer attrition during the period of business disruption related to the prolonged acquisition attempt in 2016. In the direct channel, online sales increased but were offset by the ongoing reduction in catalog sales through call centers, as well as increased utilization from the company’s buy online-pick up in store program.

Business solutions division operating income was $58 million, or 4.4% of sales, in the first quarter of 2017 compared to $46 million, or 3.4% of sales, in the first quarter of 2016. The increase in both operating income and margin was primarily driven by cost savings and efficiencies including lower selling, general and administrative expenses, which, coupled with a flat gross margin rate, more than offset the negative flow-through impact of lower sales, the company said.