Office Depot Weighs Reorganization After Mixed Q3

Office Depot reported third quarter earnings that beat a Wall Street estimate, even if retail division comparable sales stumbled. The board of directors also said that it will launch a holding company reorganization feasibility review.

In the quarter, Office Depot posted net income of $60 million, or 11 cents per diluted share, flat with the period a year previous. With one-time charges excluded, the company posted adjusted earnings per share from continuing operations of $84 million, or 15 cents per share, as compared to $71 million, or 13 cents per share, in the year-before period. Adjusted earnings per share in the quarter topped a MarketBeat analyst consensus estimate by a penny.

Sales in the quarter slipped 4% to $2.78 billion versus the period a year prior. However, operating income increased to $108 million from $105 million.

In the retail division, sales slipped to $1.18 billion from $1.25 billion as comparable sales decreased by 4%. Operating income advanced to $84 million from $70 million in the quarter a year past.

“We made further progress this quarter on our transformation efforts, enhancing our foundation for profitable growth and driving another quarter of strong operating results and free cash flow generation,” said Gerry Smith, Office Depot CEO. “Profit margins were up in all three of our divisions as a result of our Business Acceleration Program, delivering a 14% increase year-over-year in adjusted operating income and over $200 million in adjusted free cash flow. Under strong new leadership in both our Business Solutions division and CompuCom division, we are taking actions to develop a more robust sales pipeline for future growth. Some of these actions have had an adverse impact on near-term revenue, however they position us to compete more effectively going forward. Our B2B businesses were complemented by strong execution in our retail division which drove significant improvements in profitability. Moving forward, we will continue to benefit from our robust B2B supply chain, expanding set of products and services, refined focus at CompuCom, and strong balance sheet, collectively, to capture profitable growth in the future.”

Office Depot expects to complete the reorgnization feasibility study by the end of the first quarter. If implemented, the reorganization would establish a new holding company, ODP Corp. The new entity would replace Office Depot as the parent public company trading on Nasdaq. According to Office Depot, the reorganization’s intent is to simplify the company’s legal entity and tax structure, more closely align its operating assets to their respective operating channels and increase its operational flexibility.