BOCA RATON, Fla. _ Office Depot's profits fell on weaker sales in the second quarter, missing analysts' estimates and depressing its stock price Wednesday by more than 25 percent.
The company's shares tumbled $1.58 to close at $4.53 after the Boca Raton-based office supply retailer reported results for its weakest quarter of the year.
"Year to date, we're up, and Q2 is our softest quarter," CEO Gerry Smith told securities analysts on a morning conference call.
Second-quarter sales declined 9 percent to $2.4 billion compared with $2.6 billion in the same quarter in 2016, the company said.
Same-store sales _ those open at least a year _ fell 6 percent, Office Depot said. Retail sales were $1.1 billion for the quarter compared with $1.2 billion a year ago. Office Depot had lower traffic, transaction counts and average order value, according to its regulatory filing. It saw lower sales in most categories, including ink and toner, computer and technology products, offset in part by cleaning and break-room products.
Office Depot had previously said 2017 sales would be lower due to store closures. The company said it closed 31 stores during the quarter, ending with a total of 1,408. For all of this year, 75 stores are scheduled to close.
The retailer has been working to reduce its bricks-and-mortar footprint as it integrates its 2013 acquisition of OfficeMax. A year ago, Office Depot announced plans to close an additional 300 stores over three years.
But analysts on the conference call seemed most concerned that the company's big business and government contract sales haven't improved. The company blamed ongoing "competitive pressures" and previous account losses during the Staples-Office Depot transaction "disruption," when the retail companies tried to merge. The deal was challenged in court by the Federal Trade Commission, which asserted it would restrict competition in the area of big business sales. The companies called off their merger bid in May 2016.
Anthony Chukumba, research analyst for Loop Capital Markets, said on the call that the Staples-Office Depot disruption "is so far in the rearview mirror at this point," he thought Office Depot would see "better trends there."
Chief financial officer Stephen Hare said the company is winning back business from competitors and he expects to see business division sales improve by year-end. Hare also said that competitors "like Amazon" were hurting Office Depot's contract sales to big business.
Hare also said Office Depot has "pulled back" on completing the conversions to "stores of the future" that it had planned this year, but will convert 75 by year-end. Smith said 46 stores have been converted in 22 states by the second quarter. The new-format stores place greater emphasis on tech services.
In total, 75 stores converted to the store of future format by the end of 2017 and all 14 stores in Austin, Texas, will be converted to launch a comprehensive marketing plan in that city, Smith said.
Quarterly profits fell to $24 million, or 5 cents a share, compared with $210 million, or 38 cents a share. The 2016 quarter was an extraordinary one in that it included Staples' $250 million fee paid to Office Depot after the rivals' merger was scrapped in 2016.
Analysts had estimated Office Depot earnings at 9 cents.
Net income from continuing operations was $21 million, or 4 cent a share.
In the news release, Smith focused on Office Depot's adjusted operating income for the first half of the year, saying it was on target _ $220 million versus $202 million in the first half of 2016. Smith said the company will focus on driving "growth opportunities in the North American market."
But for the quarter, adjusted net income from continuing operations was flat: $34 million, or 6 cents a share, compared to $35 million, or 6 cent a share, in the second quarter of 2016.
Smith, a former executive with Lenovo and Dell, has been steering Office Depot toward technology advances and investment. The CEO has said he views Office Depot's retail store base "as an asset, not a liability," recently announcing same-day delivery from those stores to select markets starting Sept. 6. Office Depot also invested during the quarter in San Francisco-based Centriq Technology, which is developing a business version of Office Depot's app to help companies manage their assets.
Office Depot, which employs about 2,000 at its Boca Raton headquarters, has weathered tough times in recent years that included: the failure of its bid to acquire rival Staples, two changes in top leadership, the acquisition and integration of OfficeMax, staff restructuring, ongoing store closures, and the continuing pressure of online competition.
The office-supply retailer has been selling its international operations, including its South Korean stores during the second quarter, to focus on growing its North American business.
