Office Depot, which acquired CompuCom for $1 billion in November, expects the solution provider's sales to be flat in fiscal 2018 – a "pretty big reversal" of a recent business decline that has Office Depot CEO Gerry Smith optimistic. More importantly, the retail powerhouse has intriguing plans to return the IT services powerhouse to growth in future years.
Smith, who briefed Wall Street analysts Wednesday morning on the company's fourth fiscal quarter earnings call, spent much of the call outlining Office Depot's plans to integrate CompuCom IT services into its business solutions portfolio and develop new services. Among the latter, Smith said Office Depot is working "with a very well-known partner" to create an SMB subscription security offering, which will launch late in the second quarter.
Later this year, Office Depot will roll out an indirect sales program under Janet Schijns, executive vice president, chief merchant and services officer, who will lead the retailer's push to sell CompuCom's IT services offerings to SMB customers.
"We expect to introduce a new feet-on-the-street program using indirect sales agents and a variable incentive structure to further drive SMB sales," Smith said. "In addition to these IT service offerings, they'll also help drive sales of BizBox and our other subscription offerings as they are launched throughout the year."
BizBox, a business services platform launched in late 2017, features CompuCom tech support and a host of other SMB-tailored services including digital and social marketing, asset management, CRM and web hosting. Office Depot also has rolled out tech dispatch services in select markets and will make them available nationwide in the second quarter, as the company seeks to generate more recurring revenue and "stickier" customer relationships.
In conjunction with the CompuCom integration, Office Depot is redesigning its retail storefront layout aimed at embodying its new services-first outlook. The first iteration of that strategic pivot was unveiled in Austin, Texas, where Office Depot redesigned the front section of its store to focus on copy, print and tech service as well as the local business community. There is also a BizBox consulting desk located in the center of the store.
"We have included a workspace area where small businesses can connect in-network," Smith said. "To bring this vision to life, we've empowered our associates with specialized sales training focused on providing complete customer solutions, combining both products and services."
CompuCom CEO Dan Stone said that the solution provider saw a strong rebound in the fourth quarter, despite being "slightly down" from the top-line standpoint.
CompuCom, which began reporting its financial results as a division of Office Depot on Nov. 8, reported sales of $156 million for the fourth quarter of 2017. The IT services giant reported sales of $1.11 billion in fiscal 2016, which was down 7.5 percent from the previous year. Stone called the most recent quarter a strong rebound from CompuCom's historical performance.
"A lot of that has to do with the automation capabilities, artificial intelligence that we've put into our delivery capability, as well as continuing efforts across our entire cost structure," Stone said Wednesday. "We also finished the year from a strong billing perspective. We're very optimistic that that trend will continue into 2018."
Quarterly revenue for Office Depot's retail division fell 4 percent year over year to $1.2 billion amid increased market pressures for that business. The business solutions division saw sales of $1.3 billion for the quarter, marking a 7 percent decline compared with the year-ago quarter.
Smith, however, said that Office Depot is beginning to see traction around its business solutions division, noting that it could be flat for "the first time in a long, long time" in 2018.
Office Depot reported companywide revenue of $2.58 billion for the fourth fiscal quarter ended Dec. 30, 2017, down 5.5 percent from last year's fourth-quarter mark of $2.73 billion. That fell short of Seeking Alpha's projections by $30 million.
The company saw a loss of $48 million for the quarter, or 9 cents per diluted share, compared with the year-ago quarter's net income of $55 million (earnings of 10 cents per diluted share). On a non-GAAP basis, Office Depot reported net income of $45 million, or 8 cents per diluted share, which was down from net income of $59 million (11 cents per diluted share) in the fourth quarter of 2016. That performance beat Seeking Alpha's estimates by 1 cent.
Office Depot attributed the quarterly loss to $68 million in tax expenses created by recent U.S. tax law reform that changed the company's deferred tax assets and tax valuation allowance. Adjustments for those changes are reflected in its non-GAAP financials.
For full-year fiscal 2017, Office Depot saw revenue of $10.24 billion, down 7 percent year over year from $11.02 billion in 2016. The company also collected net income of $146 million, a significant drop from last year's mark of $679 million.
Looking ahead to 2018, Office Depot projects flat revenue of roughly $10.6 billion and earnings of 30 cents per diluted share (almost in line with earnings per share of 27 cents in 2017). These estimates assume a non-GAAP effective tax rate of 31 percent.