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Why Office Depot Popped as Much as 19% Friday

By Daniel Miller - May 15, 2020 at 3:39PM

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Management plans to cut jobs, close stores, and transition its business.

What happened

Shares of Office Depot (ODP -0.89%), a retailer of office products and services, jumped as high as 19% Friday, before giving back some gains, after the company announced plans to lower costs and shift its business model.

So what

Management said it plans to cut roughly 13,100 jobs and close some retail stores by the end of 2023. The strategic move should yield up to $860 million in net savings by the end of 2023. Office Depot will take charges of up to $543 million that include costs associated with store and distribution facility closings and workforce reductions. The strategic initiative is an attempt to cut costs while also shifting focus to its IT services business units.

retail shelf of office products

Image source: Getty Images.

Now what

Office Depot's push to reduce its footprint, transition to becoming more of a business-to-business player, and focus on IT services is necessary, especially considering brick-and-mortar retail struggles across the industry and that its stock has shed 76% of its value over the past five years. The news hasn't been all gloomy for Office Depot investors, as the company reported same-store sales growth of 2% during the first quarter, despite total sales declining, thanks to its expanding e-commerce prowess.

To help survive the COVID-19 slowdown, the company suspended its share buybacks and dividends and took steps to bolster its balance sheet and liquidity. Office Depot's pop in stock price Friday is welcomed by investors, but make no mistake, the company has to navigate COVID-19 fallout in the near term and refocus its business model in the long term to become an intriguing investment.

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