Office Depot grows despite declines in IT unit

Dive Brief:

Office Depot on Wednesday reported that third quarter reported sales rose 10% to $2.89 billion, as its business solutions sales rose 6% while its retail sales fell 6%. Within its new CompuCom IT business, acquired a year ago, revenues slid 4% to $268 million.
Services revenues rose 28% within its business division and 11% in its retail division, according to a company press release. Product sales in the quarter declined 7%, and store comps fell 5%, the company said.
Net income in the quarter fell to $60 million from $92 million in the year-ago quarter, as operating income in the quarter stayed flat at $105 million, despite the disappointing performance at CompuCom, the company also said.

Dive Insight:

Office Depot has made several plays to move beyond retail, including a "Workonomy" platform aimed at small and medium businesses, a Workonomy coworking pilot, its subscription BizBox services launched last year and the CompuCom acquisition. Indeed, it’s difficult to simply call the company a "retailer" anymore, considering its new emphasis on business services, though the company is growing its retail sales as well.

CEO Gerry Smith shrugged off what he called disappointing results at the IT unit, saying the company is already taking steps to improve profitability.

"CompuCom’s unique capabilities are a competitive differentiator allowing us to grow our services business and to attract new customers and distribution partners," he said in a statement. "We are already seeing successes in cross-selling opportunities and we are scaling CompuCom’s capabilities to position us to address the SMB market and further grow our services business."

When it comes to the co-working experiment, Office Depot is a bit behind Staples, which has worked with workspace startup Workbar since 2016 at three of its Boston-area stores. That move at both retailers is a good use of space as their retail operations shrink, provided their suburban big box locations attract enough customers. More broadly, some retailers are likely to see reductions of between 30% and 50% of their store space, Alan Treadgold, global retail lead at multinational advisory firm PA Consulting, said in an email to Retail Dive earlier this year.

The troubles at CompuCom didn’t prevent the company from raising its guidance for the year. The company bumped up its previous forecast for sales of $10.8 billion to $11 billion, while for adjusted operating income it would remain at $360 million, according to its release.

"Our incremental top-line revenue growth this year has been driven by organic sales increases in our BSD division and improving sales trends in our retail division," Smith said in his statement.