It would have been easy to forget it, given the past few weeks. But, a couple of years ago, office supply retailer Office Depot (NASDAQ:ODP) switched gears. Although it would still cater to consumers via its stores, it turned up the heat on the business it did with other businesses.

This redirected effort appears to be the key reason the company was able to sidestep coronavirus-related headwinds last quarter. Although sales fell, they didn't fall by much, and same-store sales were actually up year over year. A slightly stronger headwind is expected to take shape for the quarter currently underway, as consumers as well as businesses try to regroup from worldwide lockdowns.

Still, last quarter's resiliency suggests Office Depot's plan to reposition itself as an institution-oriented service provider is working out well.

Arrow hitting a target bullseye around office workers.

Image source: Getty Images.

Not what it once was

Office Depot has been under fire for years thanks to competition from Amazon.com (NASDAQ:AMZN). In 2012, Amazon unveiled AmazonSupply.com; it bolstered that move with the launch of Amazon Business in 2015. It underscored its focus on business customers in 2017 when it offered free shipping to select Business Prime customers. The e-commerce giant was the key driving force behind the merger of Office Max and Office Depot in 2013, in fact, and had the FTC not put a stop to it, the Office Max/Office Depot combo would have teamed up with rival Staples in 2015. There's just not much room left for brick-and-mortar retailers in a market Amazon chooses to address.

Office Depot isn't the retailer it used to be, however. In some ways, it's no longer a retailer at all.

The paradigm shift started in earnest in 2017 when the company acquired CompuCom, a business that helps companies establish and protect their technology infrastructure. While a profit center in and of itself, the deal was also a means of augmenting Office Depot's business solutions division (BSD).

As the name suggests, the BSD offers solutions that meet the unique needs of small and medium-sized business, like the use of purchase orders, multiple authorized buyers, and bulk delivery of supplies. Also included in the business solutions division's repertoire are copying and printing services that small and medium-sized businesses need, but often have to outsource. While in place for years and clearly aimed at the non-consumer market, the BSD didn't become a prioritized growth engine until 2018.

Not bad, considering the circumstances

Like their Fortune 500 counterparts, small and mid-sized businesses have been rattled by the coronavirus, although not as much as one might expect. Office Depot's BSD revenue only slumped 1% year over year for the three-month stretch ending in March, while CompuCom's top line fell 5%. Factoring in store sales to brick-and-mortar shoppers, a combination of consumers and business customers, companywide revenue only fell 2% last quarter, and cost-cutting led to a 233% increase in operating profits.

In an environment where many of these small and medium-sized business were shut down due to COVID-19, it's a ray of hope that Office Depot's core target market is holding up even if forgivable government loans were their ultimate lifeline.

Perhaps just as important, last quarter's relative strength can be counted as an extension of the success some investors might be surprised to see Office Depot is mustering, including measurable (even if inconsistent) operating income growth.

Office Depot (ODP) historical revenue by division.

Data source: Thomson Reuters/Refinitiv. Chart by author.

Office Depot (ODP) historical operating income by division.

Data source: Thomson Reuters/Refinitiv. Chart by author.

Amazon's foray into the business was a challenge, but Office Depot has found a way to fight back. Even the company's traditional retail business, which serves consumers and companies alike inside its stores, has been able to drive some growth when it seemingly shouldn't have. There are still some geographically localized things Amazon just can't do very well. Office Depot is capitalizing on that soft spot in Amazon's armor.

Hope floats

The optimism comes with a footnote. While last quarter was surprisingly respectable, Office Depot retracted its 2020 earnings guidance. The official quarterly statement addressed the business solutions division's headwind, "We expect these conditions to temporarily impact trends in the second quarter of 2020, resulting in declining revenue in the Company's contract channel as many businesses have paused operations or have temporarily migrated to a distributed remote workforce solution." Analysts are modeling a 6% revenue tumble for the quarter to end in June. Results should steady from there and ideally lead into a rebound headed out of 2021; clearly patience is required.

Office Depot (ODP) revenue and earnings per share, past and projected.

Data source: Thomson Reuters/Refinitiv. Chart by author.

Shareholders should also accept that an investment in Office Depot is also ultimately a bet on the survival of mid-sized and small businesses in America. Without them, the company doesn't have much of a strategic advantage. Bigger companies have in-house solutions. Micro businesses and sole proprietors don't need much of what makes Office Depot unique.

There's still good reason for hope, though.

Even aside from last quarter's resilience, small and mid-sized business owners still feel good about the future. A recent survey taken by The Harris Poll and HR solutions provider TriNet found that, despite awareness that the economic situation poses incredible risks to their survival, many small and medium-sized businesses are still counting on a fruitful future. Nearly 50% of those polled are increasing investments in their digital infrastructure, while 92% of them believe they could last another three months in the current business environment. That should be enough time to put the fallout from COVID-19 in the rearview mirror, which bodes well for Office Depot's focus.

Bottom line

If there was any question whether Office Depot is now more of a business-to-business name than not, it was answered Wednesday: It is. That's a good thing, too, as the consumer piece of the office supply market is increasingly competitive due to competition from Amazon as well as Walmart, just by the virtue of its geographical footprint.

More than anything, however, last quarter's decent results affirm Office Depot has successfully repositioned itself as an indispensable business support and service partner. It's still subject to economic cycles, but it's at least now somewhat walled off from the consumer-oriented retail apocalypse.