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Office Depot, Inc. Announces Second Quarter 2017 Results

BOCA RATON, Fla.--(BUSINESS WIRE)--Office Depot, Inc. (“Office Depot,” or the “company”) (NASDAQ: ODP), a leading provider of office supplies, business products and services delivered through an omnichannel platform, today announced results for the second quarter ended July 1, 2017.

“We continue to build our capabilities across the organization as we focus on driving the omnichannel growth opportunities we have identified in the North American market”

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“We continue to build our capabilities across the organization as we focus on driving the omnichannel growth opportunities we have identified in the North American market,” said Gerry Smith, chief executive officer of Office Depot. “I’m pleased that we have delivered year to date adjusted operating income that is ahead of the prior year and we remain on track to achieve our full year target. Longer term, we are maintaining our focus on executing initiatives to strengthen our existing business, expanding our last-mile advantage, while evaluating opportunities to transform the company for future growth.”

Consolidated Results

Reported (GAAP) Results

Total reported sales for the second quarter of 2017 were $2.4 billion compared to $2.6 billion in the second quarter of 2016, a decrease of 9%.

In the second quarter of 2017, Office Depot reported operating income of $46 million and net income of $24 million, or $0.05 per share. Net income from continuing operations was $21 million, or $0.04 per share.

In the second quarter of 2016, the company reported operating income of $271 million and net income of $210 million, or $0.38 per share. Net income from continuing operations was $232 million, or $0.41 per diluted share. Results in the second quarter of 2016 benefited from $250 million of income related to the Staples termination fee received in the period.

For the first half of 2017, Office Depot reported operating income of $173 million compared to an operating income of $356 million in the first half of 2016. Net income from continuing operations for the first half of 2017 was $95 million, or $0.18 per share, compared to net income from continuing operations of $294 million, or $0.53 per share, in the first half of 2016.

Adjusted (non-GAAP) Results (1)

Adjusted operating income for the second quarter of 2017 was million compared to an adjusted operating income of $78 million in the second quarter of 2016. Adjusted net income from continuing operations for the second quarter of 2017 was $34 million, or $0.06 per share, compared to adjusted net income from continuing operations of $35 million, or $0.06 per share, in the second quarter of 2016.

  • Adjusted operating income for the second quarter of 2017 excludes charges and credits totaling $22 million, which were comprised of $17 million in restructuring charges, $3 million in OfficeMax merger-related expenses and $2 million in executive transition costs and asset impairments.
  • Adjusted net income from continuing operations in the second quarter of 2017 excludes the after-tax impact of these items.

For the first half of 2017, adjusted operating income was $220 million compared to an adjusted operating income of $202 million in the first half of 2016. Adjusted net income from continuing operations for the first half of 2017 was $122 million, or $0.23 per share, compared to adjusted net income from continuing operations of $104 million, or $0.19 per share, in the first half of 2016.

Consolidated (in millions, except per share amounts) 2Q17 2Q16 YTD17 YTD16
Selected GAAP measures:
Sales $2,363 $2,583 $5,039 $5,459
Sales decline from prior year period (9)% (8)%
Gross profit $545 $613 $1,220 $1,327
Gross profit margin 23.1% 23.7% 24.2% 24.3%
Operating income $46 $271 $173 $356
Net income from continuing operations $21 $232 $95 $294
Discontinued operations, net of tax $3 $(22) $45 $(38)
Net income $24 $210 $140 $256
Earnings per share (continuing operations) $0.04 $0.41 $0.18 $0.53
Earnings (loss) per share (discontinued operations) $0.01 $(0.04) $0.08 $(0.07)
Net earnings per share (most dilutive) $0.05 $0.38 $0.26 $0.46
Selected Non-GAAP measures:(1)
Adjusted sales decline from prior year period excluding impact from U.S. retail store closures and foreign currency translation (6)% (5)%
Adjusted operating income $78 $220 $202
Adjusted operating income margin 2.9% 3.0% 4.4% 3.7%
Adjusted net income from continuing operations $34 $35 $122 $104
Adjusted net earnings per share continuing operations (most dilutive) $0.06 $0.06 $0.23 $0.19

(1) Adjusted results represent non-GAAP measures and exclude charges or credits not indicative of our core operations and the tax effect of these items, which may include but not be limited to merger integration, restructuring, acquisition, asset impairments and executive transition costs. Additionally, the adjusted year-over-year rate of sales decline for the consolidated company excludes sales attributable to U.S. retail store closures and the impact from foreign currency translation. Reconciliations from GAAP to non-GAAP financial measures can be found in this release as well as on our Investor Relations website at investor.officedepot.com.

Second Quarter Division Results

Retail Division

Retail Division sales were $1.1 billion in the second quarter of 2017 compared to $1.2 billion in the prior year period. The decline in sales was due to the impact of planned store closures over the past twelve months and a 6% decline in comparable store sales in the quarter versus the prior year due primarily to lower store traffic and average order value of purchases.

Retail Division (in millions) 2Q17 2Q16 YTD17 YTD16
Sales $1,111 $1,249 $2,469 $2,755
Comparable store sales change from prior year (6)% (5)%
Division operating income $20 $30 $132 $132
Division operating income margin 1.8% 2.4% 5.3% 4.8%

Retail Division operating income was $20 million, or 1.8% of sales, in the second quarter of 2017, compared to $30 million, or 2.4% of sales, in the second quarter of 2016. The decline from the prior year quarter primarily reflected the negative flow-through impact from lower sales and a lower gross margin rate, partially offset by lower selling, general and administrative expenses realized from the company’s store closure program and Comprehensive Business Review initiatives.

During the second quarter, the company closed 31 stores and ended the quarter with a total of 1,408 retail stores in the Retail Division.

Business Solutions Division

Business Solutions Division sales were $1.2 billion in the second quarter of 2017, a decline of 6% in constant currency compared to the second quarter of 2016. The sales decline was primarily driven by continued competitive pressures, prior period customer losses in the contract channel, the ongoing reduction in catalog sales through our call centers and the impact of sales from omnichannel programs that are recorded in the Retail Division.

Business Solutions Division (in millions) 2Q17 2Q16 YTD17 YTD16
Sales $1,248 $1,330 $2,563 $2,698
Sales decline from prior year (in constant currency) (6)% (5)%
Division operating income $64 $63 $122 $109
Division operating income margin 5.1% 4.8% 4.8% 4.0%

Business Solutions Division operating income was $64 million, or 5.1% of sales, in the second quarter of 2017 compared to $63 million, or 4.8% of sales, in the second quarter of 2016. Although operating income increased slightly compared to the prior year quarter, operating margin benefited as the flow-through impact from lower sales and a lower gross margin rate was more than offset by cost savings and efficiencies including lower selling, general and administrative expenses.

Sale of International Businesses

During the second quarter of 2017, the company successfully completed the sale of its business in South Korea. As announced on June 2, 2017, the company also reached an agreement during the quarter to sell its business in mainland China, with that sale being finalized on July 28, 2017.

In addition to these transactions, the company also announced on April 18, 2017, that it had entered into a definitive sale and purchase agreement related to the company’s operations in Australia and New Zealand. Closing is subject to the buyer obtaining the necessary regulatory approval and is expected to close within the next several months.

The company’s retained sourcing and trading operations in Asia contributed $4 million in sales for the second quarter of 2017 and an operating loss of $1 million. These results are reported as an “Other” segment outside of the primary two operating segments.

Corporate Results

Corporate includes support staff services and certain other expenses that are not allocated to the company’s operating divisions. Unallocated expenses decreased to $16 million in the second quarter...


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