In the company’s Q3 earnings release, CEO Gerry Smith said BSD achieved its best sales performance in more than ten years, growing the top line by 6%. This increase was largely due to dealer acquisitions that Depot has made in the past year, but Smith also highlighted BSD’s organic growth of 1%.
Elsewhere, Office Depot’s Retail division reported a comparable sales decline of 5%, while CompuCom’s result was described as disappointing as it just about managed to break even during the quarter.
Despite these mixed results, Smith said that Office Depot was “making excellent progress” on its strategy in areas such as the top line and cash flow. “The investments that we are making in building our services capabilities are also continuing to pay off as service revenues again grew double digits in both our BSD and Retail divisions,” he added. “Overall, we are making great progress on our transformation and remain confident that we have the right strategy in place to drive sustainable, profitable growth in the future.”
Office Depot’s shares were up sharply in pre-market trading as the company raised its full-year guidance and issued guidance for 2019.
Q3 results (vs Q3 2017)
Sales: $2.89 billion, up 10% as reported, mainly due to sales from CompuCom that were not included in 2017 and acquisitions in BSD.
Product sales increased 1.1% to $2.45 billion and services revenue (including the impact of the CompuCom acquisition) more than doubled to $434 million.
Adjusted EBITDA: $172 million, an increase of 3%.
Adjusted operating profit: $120 million, a decline of 6.2%.
Adjusted operating margin: 4.2% versus 4.9%.
Adjusted net profit: $71 million, down 4.2%.
Business Solutions Division (BSD):
Reported sales were $1.36 billion, up 6% year on year, mainly due to acquisitions and e-commerce. Excluding acquisitions, BSD sales were up 1%.
The improvement was primarily driven by growth in adjacent product categories, core supplies, and services. Product sales increased 5%, while services revenue increased 28%.
BSD operating profit of $67 million represented a decrease of 5.6%, driven by higher SG&A expenses that came from acquisitions and investments in e-commerce.
Retail sales fell 6% as reported to $1.25 billion, while comparable store sales declined by 5%.
Product sales in the quarter declined 7% while services revenue increased 11%.
Operating profit was $70 million, a drop of almost 15%. The decline was attributed to sales deleveraging, lower sales volumes and investments in additional delivery capabilities.
Q3 sales fell 4% to $268 million. Excluding the impact of a reorganisation at one large customer, sales for the quarter were essentially flat.
Operating profit slid from $13 million last year to $1 million. This was due to a number of factors, including: lower sales, higher expenses associated with onboarding new customers, lower gross margin on product sales mix, and expenses related to growth initiatives.
Depot said these growth initiatives contributed to a 57% increase in service order wins in the quarter 2018 versus the same period last year, representing the fifth consecutive quarter of year-over-year service order increases.
“Although we have made significant progress in many key strategic areas, CompuCom’s operating results for the quarter are disappointing and we are taking several actions to improve their profitability,” said Smith.
“These actions include a completed reorganisation to better align with customer needs, streamlining operations and realigning our sales organisation under a new sales leader. We expect that these and other actions will have a positive impact on CompuCom’s performance over the next several quarters.