Office Depot, Inc. (ODP - Free Report) is an appropriate investment option as the company’s shares have outperformed the industry in the past three months. This Zacks Rank #2 (Buy) stock has rallied approximately 14.6% compared with the industry’s growth of 5.3%.
That said, let’s delve into the factors that make Office Depot a promising bet.
Office Depot’s strategic review of business operating model, growth prospects and cost structure has put the company on growth trajectory. Office Depot is also engaging in the acquisition of small, independent regional office product dealers in different geographical locations to enhance its footprint. The company is also closing underperforming stores, reducing exposure to higher dollar-value inventory items, shuttering non-critical distribution facilities, concentrating on e-commerce platforms and focusing on providing innovative products and services.
Further, the company’s ‘buy online and pick up in-store’ initiative is gaining traction. The company intends to boost sales in the contract channel by increasing its penetration into adjacent categories and enhancing the share of wallet with existing customers. Also, the company has been improving in-store shopping experience, and expanding into the cleaning and breakroom category, copy & print services, and furniture.
Initiatives to Boost Store Productivity
As part of its U.S. retail store optimization program launched in 2014, the company had shuttered 400 stores in the first phase, and plans to close 300 more over the next three years, the second phase. Office Depot closed two stores each in the first, second and third quarters of 2018. Management had earlier notified about its plans to go slow on the store closure program.
Apart from this, the company focuses on optimal store site in order to boost store productivity. Office Depot intends to concentrate more on improving sales per square foot by increasing customer traffic and converting them into potential buyers through targeted advertising, ongoing sales training and customer-oriented initiatives. Management had earlier announced a new loyalty program called ‘Office Depot OfficeMax Rewards Everything’, which offers 2% back in rewards that can be accessed and used at all Office Depot and OfficeMax outlets.
Actions to Transform Into an Omni-Channel Business Platform
Office Depot is making efforts to catapult the business into a product and services-driven enterprise. Service revenues now represent approximately 15% of total sales. Management intends to increase the revenue contribution from services to approximately 20% of total sales in the next two years. To enhance its offerings, Office Depot acquired CompuCom Systems that is helping the former acclimatize to the fast-changing retail landscape along with providing enterprise-level tech services and products to customers. The company also signed a channel partner agreement with MicroCorp, a premier value-added distributor of telecom and cloud solutions. The company is also incorporating Tech-Zone services desk across its stores. It also launched a subscription-based business services platform, BizBox to assist start-ups and small businesses on host of things such as website designing, financing and accounting services, HR/payroll support and others.
All said, we hope that the above-mentioned strategies will help the company keep its stellar show on.
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DICK'S Sporting Goods, Inc. (DKS - Free Report) delivered average positive earnings surprise of 25.5% in the trailing four quarters. It carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Five Below, Inc. (FIVE - Free Report) delivered average positive earnings surprise of 9.1% in the trailing four quarters. It has long-term earnings growth rate of 30% and a Zacks Rank #2.
The Michaels Companies, Inc. (MIK - Free Report) delivered average positive earnings surprise of 6.4% in the trailing four quarters. It has long-term earnings growth rate of 7.6% and a Zacks Rank #2.
Zacks' Top 10 Stocks for 2019
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