Is Office Depot Dying?
Office Depot Inc. (NASDAQ: ODP) interests me because its stock is cheap. In fact, Mr. Market paid $1.40 a share for Office Depot on 23 March 2020.
Yet Office Depot is entering some interesting and potentially lucrative new businesses. For example, Office Depot is conducting background checks for the U.S Census Bureau.
The Census Bureau needs to hire 500,000 temporary workers for the 2020 U.S. Census. Office Depot is using biometric technology from Telos Identity Management Systems to conduct the checks, Biometric Update reports.
Can Office Depot Cash in on Biometrics?
To elaborate, a kiosk at Office Depot scans a job applicant’s fingerprints and eyes. That helps the individual undergo a federal background check.
I think biometrics could be an opportunity for Office Depot because many employers are hiring tens of thousands of employees fast. Amazon (NASDAQ: AMZN) plans to hire 100,000 new workers to meet additional demand Coronavirus created, NPR reports.
In addition, Amazon is expanding its same-day delivery business by opening warehouses in densely populated areas, a press release indicates. Those warehouses will need employees, and those employees will need background checks. Office Depot and Telos can provide the background checks.
Beyond employment verification, Office Depot could provide background checks for lending, government services, taxes, legal documents, and other services. Hence, Office Depot is entering a profitable business area with low labor costs.
Can Amazon Save Office Depot?
Biometrics is not the only automated service Office Depot could cash in on. Amazon is marketing its Go store automation system to other retailers, Vox reports.
Amazon is testing Go cashier-less convenience and grocery stores in several cities including Seattle. The Everything Store will sell the Just Walk Out technology it uses in the Go stores to other retailers. Amazon claims Just Walk Out offers shopping with no lines and no checkout. Instead, customers pay ahead online.
I think Coronavirus will make Just Walk Out technology very popular. To explain, doctors recommend people practice social distancing to prevent COVID-19’s spread. Social distancing means staying several feet from other people.
Can Just Walk Out Save Office Depot?
Just Walk Out promotes social distancing by eliminating the need to stand next to a cashier at the store. Retailers that install Just Walk-Out can stay open will practicing social distancing.
However, critics argue that Just Walk Out discriminates against the poor and elderly because it does not accept cash. To explain, Just Walk-Out accepts only payments from mobile phone wallets.
I think Just Walk Out could save Office Depot (NASDAQ: ODP) by reducing its labor and operating costs. Office Depot could save money by getting rid of cashiers; and cash registers, for example. In addition, Office Depot could open more stays in diverse areas and expand its footprint.
Can Just Walk Out Help Office Depot Expand?
For instance, Office Depot could open smaller stores in high-traffic areas. Such high traffic areas include downtowns, airports, malls, train station, and inside big box stores such as Walmart (NYSE: WMT) supercenters or Kroger (NYSE: KR) marketplaces.
Additionally, Office Depot could lease the cash register space to other businesses. Business that could open inside Office Depot include; Amazon Go, Aldi, McDonald’s (NYSE: MCD), Starbucks (NASDAQ: SBUX), JPMorgan Chase (NYSE: JPM), banks, 7-Eleven, Kroger (NYSE: KR), Walgreen’s (NASDAQ: WBA), Barnes & Noble, BestBuy (NYSE: BBB), and the United States Postal Service.
Thus, I think Office Depot’s footprint of 1,307 stores in North America is its most valuable asset. For instance, Amazon could buy Office Depot and convert those stores into Amazon Go locations.
Another use for Office Depot locations is for pickup of online orders, and drop off of online returns. For instance, you could order groceries from Amazon or Kroger and pick them up at Office Depot.
Other uses for Office Depot space include automatic teller machines (ATMs) and pickup lockers for online orders. Both Amazon and Walmart are experimenting with pickup lockers. I have seen Amazon pickup lockers in Safeway supermarkets in Denver.
Is Office Depot making Money?
Currently, Office Depot Inc. (NASDAQ: ODP) is making money but its revenues and profits are shrinking.
For example, Office reported quarterly revenues of $2.508 billion on 31 December 2019. That number was down from $2.782 billion on 30 September 2019.
In addition, Office Depot’s quarterly gross profit fell from $667 million in September 2019 to $571 million in December 2019. Moreover, Office Depot’s quarterly operating income fell from $108 million to $71 million in the same period.
Consequently, Office reported a net income of $55 million and an operating cash flow of $152 million for the last quarter of 2019. Those numbers were down from $60 million (net income) and $212 million (operating cash flow), three months earlier.
In comparison, Office Depot reported a quarterly ending cash flow of $110 million on New Year’s Eve 2019. That number was down from $144 million at the end of September 2019.
Finally, Office Depot’s revenue growth rate shrank during every quarter of 2019. In particular, Office Depot’s revenue growth fell by 6.07% in the quarter ending on 31 December 2019. Thus, Office Depot’s revenue growth shrank during the 2019 holiday season.
What Value Does Office Depot Have?
Presently, Office Depot has little value. For example, Office Depot had $698 million in cash and short-term investments on 31 December 2019.
Plus, Office Depot had $3.094 billion in current liabilities, $5.138 billion in total liabilities, and $7.311 billion in total assets on 31 December 2019. Given those numbers, I think Office Depot could be close to collapse.
To explain, Office Depot could run out of money and cannot pay its bills. Consequently, Office Depot could have to declare bankruptcy, shutdown, or sell itself to a hedge fund or another retailer.
Could Coronavirus Kill Office Depot?
Therefore, the Coronavirus pandemic could kill Office Depot (NASDAQ: ODP). Office Depot’s sales are up because of hoarders seeking pandemic supplies, The South Florida Business Journal claims.
However, I think the hoarding will end once people see the stores being restocked. Hence, any sales spike could create big problems for Office Depot. For example, Office Depot could lack the money to restock the shelves the hoarders pillaged.
Thus, Coronavirus could send Office Depot into the retail death spiral. To explain, the retail death spiral occurs when a retailer runs out of cash and credit. As a result the retailer cannot restock because it cannot pay suppliers.
Yes, Amazon is Killing Office Depot
I think Office Depot Inc. (NASDAQ: ODP) is vulnerable to the death spiral because its sales are declining.
Office Depot’s sales fell by 6% between fourth quarter 2019 and 4th Quarter 2020, Yahoo! Finance estimates. Moreover, Office Depot’s in-store sales fell by 7% during the same period. Sales are falling because foot traffic at Office Depot stores collapsed.
I think Office Depot’s sales are falling because Amazon (NASDAQ: AMZN) is taking its customers. Amazon Prime, in particular, offers free shipping for a low membership price. Amazon Prime also offers low prices, and almost everything Amazon sells.
In the final analysis, I think investors need to stay from Office Depot because this retailer is close to collapse. Office Depot could collapse because its only value is in locations other retailers could use.
