COMMENTARY -- Office Depot (NYSE: ODP), e-commerce powerhouse.
Silly? Not if the company's figures are correct.
The average ZDNet reader probably doesn't own Office Depot stock. Sounds dull, but dull hasn't been so bad over the last six months. Compare ODP to the S&P 500:
Office Depot stock remains far below its levels since tumbling last April. Still, the stock is up more than half a point today, on news that it plans to close 70 stores in North America and take a one-time charge of up to $300 million.
Normally that's a bad sign. Fortunately, Office Depot paired the announcement with a forecast of 15 percent growth in earnings per share this year. More important to people following the Internet scene, the company sees online sales rising more than 50 percent, which looks especially good considering Office Depot was already one of the biggest e-commerce players around.
Internet business generated nearly $1 billion for Office Depot last year. That's less than 10 percent of the $11.4 billion that First Call consensus predicts for Office Depot's 2000 revenue, but the absolute figure looks impressive compared to most online retailers.
Granted, Amazon.com (Nasdaq: AMZN) is looking at revenue of more than $2.7 billion for 2000. Analyst consensus forecasts more than $4 billion in AMZN sales this year. But Office Depot says online sales are profitable now, something that pure online plays such as Amazon.com can't claim.
Not everything Internet is rosy for Office Depot. The company plans to write down its Internet holdings by $45 million because of the lousy market. Investment gains and losses end up on a separate line in Wall Street's collective mind anyway, so no one should worry about the portfolio too much. Analysts and investors mainly care about the operational side of things.
That operations growth wouldn't matter either if Office Depot can't keep it up. But the company predicts $1.5 billion in e-commerce this year, or more than than 50 percent growth.
Given that Office Depot now expects overall revenue to grow in the mid-single digits on a percentage basis -- analysts had been looking for about 8 percent growth to $12.4 billion -- you can see that the company expects to become more reliant on the Internet. Office Depot expects to add another $1.5 billion to its e-commerce stream over the next three years, to $2.5 billion in 2003.
People following the e-commerce industry have been saying for a long time that clicks-and-bricks would win, but not everyone is growing as rapidly as OfficeDepot.com. Few consumer-oriented sites outside of Amazon.com are generating revenues in 10 figures.
Office Depot illustrates a deeper point about e-commerce. Consumer-reliant retailers have a tough time making money online, but e-commerce works well for the cost-cutting businesses that are Office Depot's main clients.
When you have an economic slowdown -- something the Fed openly acknowledged today with a rate cut -- the trend accelerates. In a perverse sense, the weak environment plays into Office Depot's e-commerce plans.
Ironically from a tech point of view, the manufacturers hurt most by Office Depot's shift might be PC companies. Hewlett-Packard (NYSE: HWP), Compaq Computer (NYSE: CPQ) and eMachines (Nasdaq: EEEE) will have 70 fewer retail outlets selling their wares.
But the rest of the world should be encouraged by Office Depot. It's one of the few stocks out there that could benefit from e-commerce and a shift toward more traditional cyclical stocks. The Depot may not be sexy, but it wins on both ends. 22GO>