While its total second-quarter sales fell 2% year over year, partly because of a drop in ecommerce sales, Office Depot Inc. is banking on its strength in online subscriptions to business services and long-term growth in sales through its ecommerce platform, executives said today.
“We remain confident in our strategy of transforming Office Depot into a leading B2B integrated distribution platform, despite the challenges we faced during the quarter,” CEO Gerry Smith said on a Q2 earnings conference call with investment analysts, according to a transcript from Seeking Alpha.
Office Depot didn’t break out ecommerce sales, but it noted that its online channel reported “less sales” in the second quarter than in prior quarters as a result of the company’s efforts to protect profit margins. It also said, however, that online subscription sales to its products and services in the second quarter increased year over year by 16% in its Business Solutions Division, which sells to business customers through multiple ecommerce sites as well as through catalogs, a customer contact center and sales reps.
Online subscriptions spark sales
“On a year-over-year percentage basis, product subscriptions generated through our ecommerce channel were the largest driver of the increase in BSD service revenues; a true testament to the investments we have made in our ecommerce platform,” Smith said.
Q1 sales in the Business Solutions Division increased 2% year over year to $1.33 billion, as operating income increased 28% to $86 million.
Office Depot, which has more than 10 million business customers, said that B2B transactions account for about 60% of revenue and about 90% of operating income across its divisions. At its retail stores, it says that “nearly 30%” of customers are from businesses. While sales in the retail division fell 5% year over year in the second quarter to $1.0 billion, the division posted a 13% increase in sales through online subscriptions and a 17% increase in sales from online orders picked up in stores.
In addition to its BSD and retail store divisions, Office Depot also operates a CompuCom division that sells I.T. services, helping small and mid-sized businesses procure, install and manage I.T. hardware and software. CompuCom makes its services available through its online ClientLink Portal, where customers can purchase I.T. products and request technical support.
CompuCom’s sales fell 7% year over year in the second quarter to $258 million. But executives noted that the division’s Q2 financial performance nonetheless appears to be on an upswing, as its revenue increased 4% from the prior quarter and its operating income reached $1 million, compared with a Q1 operating loss of $15 million.
Office Depot said it expects CompuCom to continue gaining strength as it meets customer demand for digital transformation projects. In June, it hired as president of CompuCom Mick Slattery, formerly CEO of Conduent Transportation, a division of Conduent Inc., a provider of technology and business process management services.
Smith also said Office Depot is looking forward to developing its business arrangement with Alibaba Group’s Alibaba.com to make its products available through the international marketplace and provide U.S. fulfillment and delivery services to other sellers on Alibaba.
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