Office Depot Q4 profit tops Street view; reaffirms FY19 outlook

Office Depot (ODP), a leading provider of office supplies, reported a modest increase in adjusted earnings in the fourth quarter when higher Business Solutions revenue more than offset a decline in the retail segment. The company also reaffirmed its full-year guidance. Following the announcement, the stock gained in the pre-market trading Wednesday.

The Boca Raton, Florida-based company reported adjusted earnings of $0.09 per share, higher by 13% compared to the year-ago quarter. Analysts had forecast flat earnings for the latest quarter. On an unadjusted basis, it was a net loss of $14 million or $0.02 per share, compared to a loss of $48 million or $0.09 per share in the fourth quarter of 2017.

During the three-month period, net sales grew 3.4% annually to $2.67 billion, which was broadly in line with analysts’ forecast. Product sales dropped 1%, while service revenues surged 34%. Segment-wise, the Business Solutions and CompuCom divisions registered year-on-year sales growth, while retail division witnessed a contraction.

The Business Solutions and CompuCom divisions registered year-on-year sales growth, while retail division witnessed a contraction

Reflecting the persistent weakness in the retail division, comparable store sales dropped 5%, as they did in the trailing quarters. A further decline in product sales and the closure of underperforming stores contributed to the downturn.

Read: Best Buy stock jumps after fourth-quarter earnings beat estimates

“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 CEO Gerry Smith.

Also read: Office Depot Q4 2018 Earnings Conference Call Transcript

Anticipating profitable growth in fiscal 2019, the management reaffirmed its full-year sales outlook at $11.1 billion. It continues to expect adjusted operating income and free cash flow of $375 million and $350 million, respectively. The company said it is realigning its merchandising organization, pursuing cost efficiencies and enhancing customer penetration, as part of the efforts to improve profitability this year.

Office Depot’s shares, which have been struggling to recover from the recent lows, got a much-needed boost after Wednesday’s earnings report. The stock gained about 3% in the early trading hours after closing the previous session lower. It gained about 15% since the beginning of the year.

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