Is Office Depot Done After This Warning?

Office Depot Inc. (NASDAQ: ODP) shares took a dive on Thursday after the company issued a warning for its fiscal first-quarter earnings. The office supplies retailer announced preliminary estimated results for the first quarter, ended March 31, 2019.

For the quarter, Office Depot expects to report revenue of roughly $2.76 billion and adjusted operating income of about $65 million. Consensus estimates call for $0.11 per shares in earnings and $2.82 billion in revenue for the period.

The CompuCom division is expecting to report an operating loss of approximately $15 million in the first quarter of 2019, primarily driven by lower-than-expected revenue from existing customer projects compounded by less than commensurate reductions in associated expenses. Paper costs have increased over 20% during the past 12 months, and management is pursuing several initiatives to mitigate the impact of such cost increases going forward.

The Business Solutions Division is expecting to report operating income of roughly $46 million in the first quarter of 2019. This performance was impacted by paper and paper-related costs increases that could not be completely passed through to customers due to the timing of contractual limitations.

Lastly, the Retail division is expecting to report operating income of $66 million.

Gerry Smith, CEO of Office Depot, commented:

Despite the current challenges we are facing, we are confident that our transformation is on track to drive long-term value for our stakeholders. CompuCom’s operating performance was clearly disappointing and the actions we are taking to improve its operations and sales performance are expected to yield improving results in 2019. CompuCom is an important strategic asset for our future with approximately 6,000 certified technicians providing unique services capabilities, cross-selling opportunities, and partnering opportunities with some of the most highly regarded companies in the world.” Smith continued, “I am pleased with the actions we are taking across the business to position us for long term success. To ensure our success and to address potential headwinds, we are pursuing a company-wide profit improvement plan to further improve cost efficiencies throughout the entire organization. These initiatives include organizational improvements and leveraging the use of technology and automation in our facilities and offices.

Shares of Office Depot were last seen down about 20% at $3.00, in a 52-week range of $2.00 to $3.82. The consensus price target is $3.73.

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