Office Depot's CompuCom IT consulting and managed services division delivered "poor performance" in the first quarter, and CEO Gerry Smith vowed to deliver cost reductions across the overall business, according to a statement and earnings released this morning. The effort includes a mix of layoffs and automation.
In a prepared statement, Smith said:
“Our first quarter results were disappointing driven primarily by poor performance at our CompuCom division. We are taking decisive actions and making numerous improvements in our sales and operational processes to place this business back on-target with its long-term expectations."
A new Business Acceleration Program, approved by Office Depot's board on May 6, includes "elimination of certain positions and leveraging the use of technology in its facilities and offices," a company statement says.
The plan includes:
- A "zero-based budgeting approach" to reduce discretionary spending;
- cost savings of at least $40 million in the second half of 2019;
- achieving at least $100 million in annual run-rate costs savings thereafter.
The plan will cost $100 million to implement, of which approximately $70 million will be cash for severance and related employee costs, recruitment and relocation, and third-party costs including legal and consulting fees.
We're checking Office Depot's earnings call for more details about layoffs, reorganization or automation steps that the company plans to take.
Office Depot and CompuCom: The Financial Results
For the first quarter, overall Office Depot sales were $2.8 billion, down 2 percent from the corresponding quarter last year.
Within the CompuCom division, sales were $247 million in the first quarter of 2018, down 4 percent compared to the first quarter of 2018. Office Depot blamed the CompuCom weakness on "lower project-related revenue within existing accounts, whereby some projects were delayed, reduced in scope or failed to materialize as expected."
The figures are particularly disappointing considering the managed IT services market is growing roughly 9 percent annual, according to multiple research reports.
To jumpstart CompuCom, Office Depot says it is "streamlining its operational structure to improve service velocity and efficiency, reorganizing its customer-facing organization to better align with customer needs, and realigning the sales team under new leadership to more effectively identify new opportunities to increase penetration of existing customers and accelerate cross-selling opportunities."
We're checking to see if the plan will impact headcount at CompuCom and the broader Office Depot.
Among the additional areas ChannelE2E is watching: An FBI probe into CompuCom's relationship with WalMart, in which CompuCom employees may have illegally probed WalMart email to pursue contract wins. Office Depot did not mention the FBI probe in the earnings release.
Office Depot and CompuCom: The Deal Background
Office Depot acquired CompuCom for $1 billion — or roughly 10X annual EBITDA — in 2017 to offer IT solutions, consulting and managed IT services to SMB customers.
Big box retailers have a mixed track record in the managed IT services market. Both Staples and Best Buy acquired MSPs more than a decade ago, only to sell off those assets after discovering greater-than-expected challenges in the MSP sector.
