Market Overview

Office Depot Announces Third Quarter 2019 Results

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Disciplined focus on profitability drives strong operating results and cash flow generation

Third Quarter 2019 Highlights

  • Total Reported Sales of $2.8 Billion, down 4% from Prior Year Period
    • BSD and CompuCom divisions combined represent approximately 60% of total revenues

  • Operating Income of $108 Million and Net Income from Continuing Operations of $60 Million
    • Includes charges related to the Business Acceleration Program

  • Adjusted Operating Income of $137 Million, up 14% YOY; Adjusted EBITDA of $191 Million, up 11% YOY
    • Driven by strong operating performance in BSD and Retail divisions
    • CompuCom Division operating performance continues to improve

  • Operating Cash Flow of $212M and Adjusted Free Cash Flow of $209M
  • Secured Bridge Loan to Align Maturity of Timber Note and Receivable for First Quarter 2020
    • Company expects to receive net pretax cash inflow of approximately $82 million in 1Q 2020

  • Announced Increase in Existing Stock Repurchase Program to $200 Million

Office Depot, Inc. ("Office Depot," or the "Company") (NASDAQ:ODP), a leading provider of business services and supplies, products and technology solutions through a fully integrated B2B distribution platform of approximately 1,300 stores, online presence, and dedicated sales professionals and technicians, today announced results for the third quarter ended September 28, 2019.

Consolidated (in millions, except per share amounts)

3Q19

3Q18

YTD19

YTD18

Selected GAAP measures:

 

 

 

 

Sales

$2,782

$2,887

$8,139

$8,345

Sales change from prior year period

(4)%

 

(2)%

 

Operating income

$108

$105

$117

$230

Operating income margin

3.9%

3.6%

1.4%

2.8%

Net income from continuing operations

$60

$60

$44

$113

Diluted earnings per share (EPS) from continuing operations

$0.11

$0.11

$0.08

$0.20

Operating Cash Flow (1)

$212

$304

$214

$555

Selected Non-GAAP measures: (2)

 

 

 

 

Adjusted EBITDA

$191

$172

$434

$429

Adjusted operating income

$137

$120

$275

$276

Adjusted operating income margin

4.9%

4.2%

3.4%

3.3%

Adjusted net income from continuing operations

$84

$71

$160

$147

Adjusted EPS from continuing operations (most dilutive)

$0.15

$0.13

$0.29

$0.26

Free Cash Flow (1) (3)

$180

$257

$91

$434

Adjusted Free Cash Flow (4)

$209

$257

$175

$434

(1)

Both Operating Cash Flow and Free Cash Flow are from continuing operations.

(2)

Adjusted results represent non-GAAP measures and exclude charges or credits not indicative of core operations and the tax effect of these items, which may include but not be limited to merger integration, restructuring, acquisition costs, asset impairments, and executive transition costs. Reconciliations from GAAP to non-GAAP financial measures can be found in this release as well as on the Investor Relations website at investor.officedepot.com.

(3)

As used throughout this release, Free Cash Flow is defined as cash flows from operating activities of continuing operations less capital expenditures. Free Cash Flow is a non-GAAP measure and reconciliations from GAAP financial measures can be found in this release.

(4)

As used throughout this release, Adjusted Free Cash Flow excludes the Federal Trade Commission cash settlement of $25 million in year-to-date 2019 and cash charges associated with the Company's Business Acceleration Program of $29 million and $59 million in the third quarter and year-to-date 2019, respectively.

"We made further progress this quarter on our transformation efforts, enhancing our foundation for profitable growth and driving another quarter of strong operating results and free cash flow generation," said Gerry Smith, chief executive officer of Office Depot. "Profit margins were up in all three of our divisions as a result of our Business Acceleration Program, delivering a 14% increase year-over-year in adjusted operating income and over $200 million in adjusted free cash flow. Under strong new leadership in both our Business Solutions Division (BSD) and CompuCom Division, we are taking actions to develop a more robust sales pipeline for future growth. Some of these actions have had an adverse impact on near term revenue, however they position us to compete more effectively going forward. Our B2B businesses were complemented by strong execution in our Retail Division which drove significant improvements in profitability. Moving forward, we will continue to benefit from our robust B2B supply chain, expanding set of products and services, refined focus at CompuCom, and strong balance sheet, collectively, to capture profitable growth in the future," he added.

Consolidated Results

Reported (GAAP) Results

Total reported sales for the third quarter of 2019 were $2.8 billion, a decrease of 4% compared to the third quarter of 2018. The decrease in revenue over the same period last year was primarily the result of lower sales in the Retail division, driven by lower same store sales combined with fewer retail stores, and lower sales in the CompuCom and BSD divisions. Product sales in the third quarter were down 3% relative to the prior year period. Service revenue was down 7% year-over-year related to lower comparable sales at CompuCom, partially mitigated by a 7% year-over-year increase in service revenue in the Retail division. On a same store comparable basis, service revenue increased by approximately 10% in the Retail division. On a consolidated basis, service revenue represented approximately 15% of total Company sales in the third quarter of 2019.

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