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Office Depot (ODP) Down More Than 20% in a Month: Here's Why

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In spite of Office Depot, Inc.’s (ODP - Free Report) concerted efforts to give itself a complete makeover in an environment where demand for office products (paper-based) has shrunk due to technological advancements, shares of the company have fallen significantly in a month. The company has been focusing on business operating model, viable projects and cost structure. The company is also making incremental investments to catapult it into a product and services-driven enterprise.

However, management’s cautionary statement on lower-than-expected operating performance at the CompuCom division was enough to push this Zacks Rank #4 (Sell) stock into the bearish territory. It also added that the segment’s muted performance will have a direct bearing on total revenues and operating income during the first quarter of 2019.

All these led shares of this provider of business services and supplies, products, and technology solutions to nosedive 28.2% in a month compared with the industry’s rise of 7.9%.


Let’s Introspect

Office Depot now envisions first-quarter revenues to be approximately $2.76 billion, down more than 2% from the year-ago period. It forecasts adjusted operating income of approximately $65 million, taking into account operating loss of about $15 million for CompuCom division, down from $93 million reported in the year-ago quarter.

Boca-Raton based Office Depot had acquired CompuCom in 2017 to transition from a traditional office products retailer to a business services and technology company. However, weaker-than-anticipated revenues from existing projects and less-than-proportionate fall in related expenses compelled management to project an operating loss for the division in the first quarter. The division had generated operating income of $5 million in the first quarter of 2018.

Nevertheless, the company hopes that streamlining operational structure, exploring options to speed-up cross-selling opportunities and reorganizing customer-facing organization will help it bring the segment back on track.

Office Depot guided first-quarter operating income from Business Solutions Division to be approximately $46 million, down from $55 million in the year-ago period. Management informed that increase in paper and paper related costs, lower e-commerce sales and other investments were a drag on operating income. The company now anticipates Retail division’s operating income to be about $66 million in the first quarter of 2019, down from $72 million reported in the year-ago period.

We also note that the Zacks Consensus Estimate of 6 cents and 31 cents for the first quarter and 2019 has declined 6 cents and 10 cents, respectively, in the past 30 days.

3 Stocks to Watch

Abercrombie & Fitch (ANF - Free Report) delivered average positive earnings surprise of 88.3% in the trailing four quarters. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco (COST - Free Report) delivered average positive earnings surprise of 5.5% in the trailing four quarters. The stock has a Zacks Rank #2 (Buy). (AMZN - Free Report) has a long-term earnings growth rate of 31.2% and a Zacks Rank #2.

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