Office Depot's Q1 Earnings In Line but Revenues Falter - Analyst Blog
Office Depot, Inc. ODP reported first-quarter fiscal 2015 adjusted earnings of 13 cents per share that came in line with the Zacks Consensus Estimate and jumped 86% from the year-ago quarter figure.
Office Depot Inc. - Earnings Surprise | FindTheCompany
Including one-time items, the company reported earnings of 8 cents a share as against loss of 21 cents recorded in the prior-year quarter.
Synergies from the merger with OfficeMax acted as a catalyst for the growth. The company began 2015 with $500 million in synergy benefits and continues to expect synergies of over $750 million by 2016-end, given its integration with OfficeMax.
However, the company’s total revenue decreased 11% year over year to $3,877 million and fell way short of the Zacks Consensus Estimate of $4,104 million. Excluding impact of store closures, prior year quarter’s Grupo OfficeMax JV sales, and forex fluctuations, sales slipped 4%.
Management continues to project total sales in 2015 to be lower than that of 2014 on account of store closures, currency headwinds, business disruption owing to impending merger with Staples, Inc. SPLS and tough market conditions.
The office supplies industry continues to face weakness due to soft demand for office products (paper-based) and increasing competition. On the one hand, smartphones, tablets and laptops are fast emerging as viable substitutes for paper-based office supplies, and on the other hand, mass merchandisers like Wal-Mart Stores Inc. WMT and online retailers like Amazon.com Inc. AMZN have expanded into the office supplies space.
Industry experts believe that the $6.3 billion deal between Staples and Office Depot is a step to stave off competition, attain cost synergies and provide consumers with a better omni-channel platform. The transaction is expected to conclude by the end of 2015.
Back to results, adjusted gross profit during the first quarter fell 6.1% year over year to $937 million, whereas gross margin expanded 90 basis points to 24.2%.
Adjusted operating income came in at $135 million, almost double from the operating income of $65 million in the year-ago quarter while adjusted operating margin grew to 3.5% from 1.6%.
Segment Performance
In the reported quarter, the North American Retail division’s revenues fell 9% to $1,653 million. Comparable-store sales decreased 2% due to reduced average order value. The segment reported operating income of $86 million, which more than doubled from the prior-year quarter mainly on the back of lower occupancy costs and decreased selling, general and administrative expenses.
Total store count at the North American Retail division was 1,725 at quarter-end. During the quarter, the company shuttered 20 outlets.
Revenues for North American Business Solutions fell 4% to $1,477 million owing to soft Canadian sales and planned transition of some large customers under a legacy OfficeMax Tier 1 arrangement. The division posted operating income of $58 million, up 45% from the prior-year quarter.
The International division’s revenues tumbled 20% to $747 million as currency headwinds intensified. On a constant currency basis too, sales declined 7%. The division’s operating income of $14 million decreased 12.5% year over year.
At the end of the quarter, total store count at the International division was 262, comprising 144 company-owned outlets and 118 outlets operated by franchisees and licensees.
Other Financial Details
Office Depot, whch carries a Zacks Rank #3 (Hold), ended the quarter with cash and cash equivalents of $927 million, long-term debt of $658 million and shareholders’ equity of $1,622 million. Management projected capital expenditures of approximately $230 million in 2015.
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