Office Depot, Inc. (NASDAQ: ODP) is a leading provider of business services and supplies, products and technology solutions through its fully integrated omni-channel platform of approximately 1,400 stores, online presence, and dedicated sales professionals and technicians to small, medium and enterprise businesses.
On May 9th, the company announced results for the first quarter ended March 31, 2018. ODP reported positive momentum in its core businesses and delivered financial results which exceeded recent outlook. Total sales in the first quarter were $2.8 billion and up 6% versus the prior year.
Office Depot achieved a significant milestone with its Business Solutions Division reporting positive sales growth for the first time since 2012. This is primarily driven by the company’ focus on growing the customer base with its demand generation efforts and successfully expanding offerings beyond office products. When combined with CompuCom, these business-to-business (B2B) focused divisions represent nearly 60% of total sales.
Also, the management is excited about the progress it made thus far to strengthen its core businesses and expand the service and subscription offerings to its B2B and business-minded customers. The company’ strategic growth initiatives are gaining traction and are expected to continue building momentum throughout the year on this transformation journey to deliver long-term, sustainable growth. In fact, due to the favorable results achieved in the first quarter of 2018, the Company has already increased. It’s 2018 full-year outlook for sales, adjusted operating income, and free cash flow.
On the liquidity front, the company was able to generate $170 million of free cash flow in the first quarter, also well ahead of expectations. Subsequently, ODP declared a dividend of $0.025 per share ($0.10 per share on an annualized basis) on the common stock, payable on June 15, 2018.
The market believes that the company is at a critical inflection point right now and 2018 is expected to be a transition year for the company with steady cash flow supporting to robust liquidity and high dividend yields.
Considering recent developments, analysts see promise in the company and believe it will provide a robust fundamental appeal to the investors as well as momentum players trading the stock. Several brokerage firms have initiated coverage on the company, and the stock currently has an average rating of “Buy” and a consensus price target of $4.59.
About the company: Office Depot, Inc. (NASDAQ: ODP) is a leading provider of business services and supplies, products and technology solutions through its fully integrated omni-channel platform of approximately 1,400 stores, online presence, and dedicated sales professionals and technicians to small, medium and enterprise businesses. Through its banner brands Office Depot®, OfficeMax®, CompuCom® and Grand&Toy®, the company offers its customers the tools and resources they need to focus on their passion of starting, growing and running their business.
Business Model:
Other key updates: Releases Tenth Annual Diverse Supplier Catalog.
More recently on May 31st, the company announced the release of the tenth edition of its Diverse Supplier catalog. Through its supplier diversity program, ODP offers an exceptional array of innovative, top-quality products and services. The 2018 Diverse Supplier Catalog helps the customers succeed in their supplier diversity purchasing initiatives, while also supporting small and diverse-owned businesses growth and prosperity.
Stability in B2B focused businesses.
Key Revenue drivers:
The continued shift in marketing toward digital and away from traditional inserts.
Demand generation gaining traction
1) Online traffic up +9%
2) Loyalty enrolments up +27%
3) New business customer acquisition doubled in Q1’18 compared to the growth in Q4’17
Improved customer acquisition efficiency
Subscriptions growing and exceed 245K
Partnered with WPP marketing agency to bring best-in-class solutions
First Quarter 2018 Results:
Revenue: Total reported sales for the first quarter of 2018 were $2.8 billion compared to $2.7 billion in the first quarter of 2017, an increase of 6%. As a result of the CompuCom acquisition and focus on growing services revenue, the Company has enhanced its disclosure to report the breakdown between product sales and service revenues. Office Depot’s service revenues now make up approximately 14% of the Company’s total sales.
Profitability: In the first quarter of 2018, Office Depot reported operating income of $77 million and net income from continuing operations was $33 million, or $0.06 per share, compared to operating income of $124 million, net income from continuing operations of $74 million and $0.14 per share in the first quarter of 2017. The decrease was primarily due to lower gross margins from store and supply chain cost deleverage as well as higher selling, general and administrative expenses.
Liquidity and financial flexibility: Total liquidity of approximately $1.6 billion at the end of 1Q’18 $0.7 billion of cash & equivalents $0.9 billion available under the asset-based lending facility.
Enhanced Outlook for rest of 2018: Due to the favorable results achieved in the first quarter of 2018, the Company is increasing its 2018 full-year outlook for sales, adjusted operating income and free cash flow.
Key risk factors and potential stock drivers:
- Given the recent positive developments, a short-term rebound is likely, but long-term outlook continues to be dependent on the company’s ability to meet the earning growth in 2018.
- Results of upcoming quarter and company’ ability to maintain its comfortable liquidity position.
- The company’s operational and market risk profile is exposed to risk related to competitive forces. The company’ ability to withstand competitive pressure will continue to remain a key business sensitivity factor.
Stock Chart:
Comments:
- On Tuesday, June 5th, 2018, ODP is trading at $2.68, on volume of 1.4 million shares exchanging hands. Market capitalization is $1.378 million. The current RSI is at 70.98
- In the past 52 weeks, shares of ODP have traded as low as $2.00 and as high as $6.26
- At $2.68, shares of ODP are trading above its 50-day moving average (MA) at $2.23 and below its 200-day moving average (MA) at $3.09
- The present support and resistance levels for the stock are at $2.32 & $2.56 respectively.
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