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Why Office Depot Stock Sank 33.9% in April

Steve Symington, The Motley Fool

What happened

Shares of Office Depot (NASDAQ: ODP) fell 33.9% in April, according to data from S&P Global Market Intelligence, after the office supply retailer provided weaker-than-expected preliminary results.

Office Depot stock plunged nearly 24% on April 4 alone, the first trading day after it warned first-quarter 2019 revenue would arrive at roughly $2.76 billion -- below the $2.83 billion most analysts were modeling -- translating to a roughly 30% decline in adjusted operating income to $65 million.

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So what

Those preliminary estimates weren't far off the mark -- if a little too pessimistic. When Office Depot released its official first-quarter results yesterday morning (May 8), it showed revenue had tumbled around 2% year over year to $2.77 billion, while adjusted operating income fell 28% to $67 million. 

Office Depot CEO Gerry Smith rightly called the quarter "disappointing," primarily blaming weakness from their CompuCom division, where revenue slipped 4% and resulted in a $15 million operating loss.

Now what

"We are taking decisive actions and making numerous improvements in our sales and operational processes to place this business back on-target with its long-term expectations," Smith added. "That said, our strategy remains compelling and we are steadfast in our plan to transform Office Depot into a leading provider of business products and services through our world-class integrated distribution platform."

More specifically, Office Depot is implementing an accelerated cost-reduction and business-improvement program, through which it expects to generate at least $40 million of savings this year and over $100 million in annualized savings thereafter. But those savings won't come cheap: Office Depot expects to incur around $85 million in severance and related employee costs for the remainder of fiscal 2019, as well as $110 million in total costs to implement the plan through 2021.

In the meantime, Office Depot now expects fiscal 2019 revenue of $10.8 billion to $10.9 billion, marking a reduction from its previous guidance for $11.1 billion. Given that weak start to the year, it should be no surprise to see Office Depot stock flirting with its 52-week low today.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.