How are IT service providers and solutions providers holding up during the coronavirus pandemic and associated economic fallout? The latest quarterly results from Office Depot and its CompuCom Division, disclosed May 6, provide some clues.
For Office Depot's first quarter ended March 28, 2020, CompuCom reported:
- Sales of $235 million, down 5% compared to the first quarter of 2019 and flat with the fourth quarter of 2019.
- Operating income of $3 million -- far bette than a $15 million operating loss in the first quarter of 2019.
Those results show considerable progress compared to some of the business challenges CompuCom faced in 2019. But, the results also don't reflect the deeper COVID-19 economic shutdown that expanded across the United States through April 2020.
CompuCom: Business Pivot, Coronavirus Challenges
Office Depot acquired CompuCom in 2017 for $1 billion — or a lofty 10 times EBITDA. At the time, ChannelE2E warned that the struggling retail giant likely overpaid for the IT services provider.
The acquisition initially struggled to meet performance goals. In response, Office Depot shook up CompuCom's executive team and services portfolio in June 2019.
Fast forward to present day, and CompuCom's performance has improved in some areas -- though the COVID-19 pandemic will certainly pressure the business in the weeks ahead.
In a prepared statement about Q1 2020 results, Office Depot CEO Gerry Smith said:
“We remain encouraged by the early signs of progress and the opportunities ahead for CompuCom. During the COVID-19 health crisis, CompuCom’s operational support was critical, and they have built significant credibility with customers by enabling them to remain operational during this period, as many companies pivoted to a work-from-home environment. Notwithstanding the near term challenges, CompuCom’s unique capabilities to support distributed work forces with state of the art technology, and a unique field force of over 6,500 field techs and support personnel, have it well positioned to capitalize on opportunities in this growing area. We continue to gain traction as evidenced by another quarter of significant new contract wins, including eight new major customers. CompuCom’s refocused strategy of connecting people, technology, and the edge, places greater emphasis on its core offerings and expands its value proposition. Although we have much more work to accomplish, CompuCom is on the right path to capture profitable growth in the expanding digital workforce arena."
CompuCom Q1 2020 Business Performance: More Details
Digging a little deeper on CompuCom's latest quarterly results, Office Depot said the year-over-year revenue decrease was due to project-related customer-imposed delays and lower services volumes as the COVID-19 health crisis impacted business operations of certain customers.
Moreover. some of the revenue decline also involved CompuCom exiting certain services businesses. Still, CompuCom's technology-related product sales rose in the quarter despite supply constraints, Office Depot indicated.
Meanwhile, Office Depot's overall Q1 2020 results impressed Wall Street. Total reported sales were $2.7 billion, down 2% from prior year but better than investors expected. Net income was $45 million -- far larger than $8 million net income in Q1 2019.
Amid the earnings disclosure, Office Depot shares rose more than 10 percent in pre-market trading on May 6, 2020.
