Office Depot's Expanded Services, New Items Drive Improved 2Q Results

Office Depot’s emphasis on product innovation and expanded services helped push second-quarter revenue and profits beyond Wall Street expectations.

“We don’t look like the 1980s. We look like 2018.”

Under CEO Gerry Smith, who took over the company late last year, the Boca Raton, Florida, chain is attempting to expand beyond selling office supplies, to become a one-stop shop for business. Office Depot is maneuvering itself to provide services ranging from technology consulting and installation, to logo design.

Total services accounted for 16 percent of all revenue during the second quarter, double from the same period last year.

Smith wants that figure to hit 20 percent in the next few years not only to build stronger customer loyalty, but also to fatten profit margins. Services tend to have higher profit margins than office supplies.

Office Depot has boosted training for workers, who are engaging more with customers rather than stocking shelves. It’s also beefed up its subscription services for such products as paper towels and water as well as ink.

The chain also is pushing innovation — 10 percent of its sales came from products that were launched this year. Still, even long after its merger with smaller rival OfficeMax back in 2014, competition from Amazon.com and others has only intensified.

“We don’t look like the 1980s,” Smith said in an interview with The Associated Press. “We look like 2018.”

And there are encouraging signs heading into the back-to-school shopping season, Smith said, a crucial period for the company.

There has been no impact from rising trade escalations with China, though Smith believes that any price increases will be manageable. Home Depot is trying to get ahead of any pricing issues by working with partners to drive down costs and push services.

Office Depot reported a second-quarter profit of $16 million, or 3 cents per share, compared with $24 million, or 5 cents per share in the year-ago period.

Earnings, adjusted for non-recurring costs and to account for discontinued operations, came to 5 cents per share, or a penny better than expected, according to a survey by Zacks Investment Research.

Revenue was $2.63 billion, up from last year’s $2.36 billion, and topping analyst projections of $2.57 billion.

Office Depot Inc. expects full-year revenue of $10.8 billion.

Shares rose 13 percent, in midday trading, but they’re down more than 50 percent over the past 12 months.