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Why Office Depot Shares Are Up Today

By Lou Whiteman – May 6, 2020 at 10:58AM

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Earnings came in ahead of expectations.

What happened

Shares of Office Depot (ODP -1.07%) traded up 20% on Wednesday after the company reported first-quarter results that came in ahead of expectations. Office Depot is also adopting a so-called poison pill, an increasingly popular option for companies worried a hostile suitor could try to take advantage of recent market volatility.

So what

Office Depot before markets opened on Wednesday reported first-quarter adjusted earnings of $0.12 per share on revenue of $2.7 billion, ahead of analyst expectations for $0.07 per share on revenue of $2.68 billion. Sales were down 1.4% year over year, but the results show that the retailer held up well as the COVID-19 pandemic worsened.

An office environment.

Image source: Getty Images.

"Our strong Q1 performance reflects the commitment and tireless work of our team as we supported the essential needs of businesses, consumers, educators, students, healthcare workers, and first responders during the global health crisis that has unfolded in our nation," CEO Gary Smith said in a statement.

Same store sales were up 2% year over year.

Office Depot is expecting second-quarter results to be pressured, as the pandemic worsened heading into April. The company is temporarily suspending share buybacks and dividends to preserve liquidity. The company also said its board has adopted a limited-duration shareholder rights plan, a so-called poison pill, to protect the company from unsolicited takeover overtures.

Now what

Office Depot generated $188 million in operating cash flow in the first quarter, helping the company swell its cash and report nearly $1.7 billion in total available liquidity. That's the company's highest net cash position in more than two years.

The coming months could be difficult, but in an environment where retailer bankruptcies are spiking and many companies are scrambling to survive, Office Depot made a pretty strong case that it can get through the pandemic. That's reason enough for investors on Wednesday to give the company a fresh look.

Lou Whiteman 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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