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Why Office Depot Stock Tumbled Today

By Jeremy Bowman – Apr 4, 2019 at 5:59AM

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Shares of the office supplies retailer were moving lower on a weak preliminary earnings report.

What happened

Shares of Office Depot (ODP -1.42%) were sliding today after the struggling office supplies retailer offered a disappointing preliminary first-quarter earnings report.

As a result, the stock was down 16.6% as of 10:33 a.m. EDT

Office supplies on a shelf at a retail store.

Image source: Getty Images.

So what 

Office Depot said that revenue and adjusted operating income for the first quarter were expected to come in at $2.76 billion and $65 million, respectively.  That was below revenue estimates at $2.82 billion and down from $2.83 billion in the quarter a year ago. It also compared unfavorably with $93 million in adjusted operating income the year before. Management blamed the poor results on weaker-than-expected performance at CompuCom, the IT services provider it acquired in 2017 for $1 billion. Its adjusted operating income was down from $93 million a year ago. 

Office Depot said it expected an operating loss of $15 million at the CompuCom division due to lower-than-expected revenue from existing customer projects. The company said it would take several steps to improve performance at CompuCom, including improving service speed and efficiency, and reorganizing its customer-facing staff. 

Office Depot also projected $46 million in operating income from its Business Solutions Division, and $66 million form its retail division. 

CEO Gerry Smith said, "Despite the current challenges we are facing, we are confident that our transformation is on track to drive long-term value for our stakeholders. CompuCom's operating performance was clearly disappointing and the actions we are taking to improve its operations and sales performance are expected to yield improving results in 2019."

Now what  

The weak results from CompuCom are especially disappointing as the acquisition was a key part of the company's plan to pivot to becoming an all-encompassing business solutions provider. Given the declining revenue and operating income, it's not surprising to see the stock falling today, even as management is promising improvements at CompuCom later in the year. 

We'll learn more when the company gives its complete first-quarter earnings report on May 8, which will include updated full-year guidance.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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