Office Depot's retail business remains under pressure, but the recent $1 billion CompuCom acquisition will pivot the company toward a services-led future, company executives reinforced during a Q4 2017 earnings call today.
Moreover, potential synergies between CompuCom and BizBox, an emerging Office Depot small business subscription service, should emerge soon, executives added.
Still, near-term challenges remain. Office Depot's total reported sales were $2.6 billion in Q4 2017, down 5 percent from $2.7 billion in Q4 2016, the company revealed today. Operating income was $59 million, and a net loss from continuing operations was $48 million. Overall the Q4 2017 results exceeded Wall Street's expectations.
Even so, Wall Street analysts were disappointed by Office Depot's overall 2018 profit forecast. Shares fell about 10 percent shortly after the earnings release surfaced. However, the shares recovered about four percent after Staples executives walked analysts through the results during an earnings call.
CompuCom: Flat Business Is Looking Up
Office Depot executives praised the recently acquired CompuCom business, noting that financial results for the organization should be flat in 2018, CEO Gerry P. Smith said on the earnings call.
"I think it's a huge inflection point for the company that CompuCom is flat," Smith side. "So we have $1.1 billion in sticky, stable revenue and a lot of EBITDA around that -- as well as the BSD team business being stabilized is a huge statement that we're strengthening our core business."
Office Depot acquired CompuCom for about $1 billion in October 2017, a valuation of slightly more than 10 times EBITDA. Executives from both companies predicted the deal will create major synergies between the retail giant’s physical locations and CompuCom’s extensive IT services experts. Also, a portion of CompuCom’s business involves recurring revenues — which Wall Street now craves.
BizBox, CompuCom Synergies
Office Depot executives mentioned CompuCom more than two dozen times during today's earnings call, reinforcing just how much the retailer is betting on the IT service provider. Among the areas to watch: Connections between CompuCom and Office Depot's recently launched BizBox service.
BizBox, a subscription service that starts at $99 per month, helps small businesses navigate accounting, email marketing and CRM, payroll and HR, search marketing and other services that startup companies typically lack in-house. Plus, various CompuCom technical services will surface in BizBox soon, the company has repeatedly hinted.
"To address the sales decline in retail, we are moving forward to accelerate a number of initiatives this year, including the focus on digital demand generation, rolling out tech services, the expansion of BizBox and the launch of our subscription-based service offerings on a nationwide basis," Smith added during today's call.
Office Depot Channel Investments
Office Depot has also made major investments in its partner know-how. Former Verizon Channel Chief Janet Schijns joined the company last year and in January 2018 was promoted to EVP, chief merchandising and services officer. She also oversees the company's indirect agent and VAR sales channel, and manages all vendor and partner relationships.
Other key partner-centric additions include:
- ShoreTel veteran Heather Tenuto joined in November 2017 as VP of channels.
- ShoreTel, Fonality and Mitel veteran David Beagle joined in November 2017 as senior director, channel services.
- Cisco veteran Michelle Ragusa-McBain joined as senior director of technology sales and services in December 2017.
Opportunities and Challenges
No doubt, Office Depot may exploit potential synergies between its retail locations, customer database and newly acquired IT services portfolio. But the company must avoid mistakes that retail rivals like Staples and Best Buy previously made with MSP-centric acquisitions. In both cases, Staples and Best Buy ultimately sold off their MSP assets because the business models were too difficult for traditional retailers to master and scale.
Still, CompuCom is roughly 10 times to 20 times larger than the IT consulting and IT services businesses that Staples and Best Buy previously owned, ChannelE2E estimates. That could bode well for Office Depot as it seeks to further scale and optimize CompuCom.
