Office Depot, Inc. (ODP) remains focused on increasing return on investment through increased merger synergies, enhancement of store productivity and strategic initiatives for driving long-term growth. This is very well evident from the stock’s splendid performance that has increased 63.1% over the past year.
The merger with OfficeMax has been a shot in the arm for Office Depot. After grappling with soft sales for a long time, the company’s financial performance has started to improve. A glimpse of the 2014 performance highlights the same with the company beating the Zacks Consensus Estimate by an average of 48.1% in the trailing three quarters, including 11.1% in the last-reported quarter.
This Zacks Rank #2 (Buy) stock has posted solid third-quarter 2014 results, backed by cost savings from the merger. Adjusted earnings per share came in at 10 cents, beating the Zacks Consensus Estimate by a penny and significantly up from the pro forma earnings per share of 5 cents recorded last year.
The company’s total revenue during the quarter also surged 55.4% year over year to $4,069 million, almost in line with the Zacks Consensus Estimate of $4,070 million.
Following solid third-quarter fiscal 2014 results, Office Depot, increased its adjusted operating income for fiscal 2014, which is now expected to be in the range of $255–$265 million, up from its previous forecast of at least $200 million.
Moreover, management has increased its synergies expectations in all of the last three earnings conference, reinforcing investors’ confidence in the stock. Including synergies from store closures, management now expects to achieve synergies of over $750 million by the end of 2016, higher than the earlier expectation of $700 million.
Apart from solid earnings and an encouraging guidance, this major player in the office supplies sector has been performing well by focusing on driving long-term growth through its strategic initiatives. These include cost containment, closing of underperforming stores, reducing exposure to higher dollar-value inventory items, shuttering non-critical distribution facilities, concentrating on eCommerce and focusing on providing innovative products and services.
Moving on, in order to boost store productivity, the company intends to concentrate more on improving sales per square foot by increasing customer traffic and converting them into potential buyers through targeted advertising, ongoing sales training and customer-oriented initiatives.
We believe that persistent focus on these endeavors along with its spectacular performance have led to the company's growth. However, stiff competition from rivals like Staples Inc. (SPLS), mass merchandisers such as Wal-Mart Stores Inc. (WMT) and online giants like Amazon Inc. (AMZN) remains a concern.
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