FedEx is re-branding its struggling retail office services unit from FedEx Kinko’s to FedEx Officeand will record a pre-tax charge of $891 million (€571 million) for the fourth quarter ending May
31, 2008, to reflect the business’s lower value.FedEx bought Kinko’s, a leading US office services chain, for $2.4 billion in 2004 in orderto gain a retail network marketing FedEx services to small businesses alongside the core officeservices. The company currently contributes about $1 billion a year in revenues to the FedExExpress and FedEx Ground businesses.
But its profits have dropped sharply in recent years as business slowed due to lower demandfor office services. In the year ending May 2007, its operating profits dropped 21% to just $45million on revenues down 2% at $2,040 million. It is now focusing on profitable core revenue growthand incremental shipping volume, and a planned expansion strategy with new, smaller locations hasbeen scaled back.
FedEx said that the new “FedEx Office” name better describes the wide range of servicesavailable at the retail centres and takes full advantage of the FedEx brand. The centres will berebranded during the next several years.
The goodwill impairment charge reflects a decline in the current fair value of the FedExOffice unit in light of current economic conditions, the unit’s recent and forecasted performanceand the decision to reduce the rate of store expansion. The charge comprises $515 million for thetermination of the Kinko’s brand and $367 million of goodwill resulting from the 2004 acquisition.This charge was not included in FedEx’s latest earnings guidance issued on May 9. The Q4 andfull-year results will be announced on June 18.
“Kinko’s was primarily a copy and print-service provider when it was acquired in 2004,” saidBrian D. Philips, president and chief executive officer of FedEx Office. “The name FedEx Officemore accurately represents our broader role of providing superior information and services throughour company-owned, digitally connected locations around the world. We are a back office for smallbusinesses and a branch office for medium to large businesses and mobile professionals.”
In May, Philips was named president and chief executive officer of FedEx Office. The unit’ssenior management team was reduced and restructured to better support execution of the company’sstrategy and to control costs. Earlier this year, the company reduced future capital commitments byslowing the rate of expansion from about 300 locations in fiscal year 2008 to about 70 in fiscal2009.
Dallas-based FedEx Office has a global network of about 1,900 digitally-connected locationsin 11 countries, mostly in the USA. The US centres provide office services to small businesses, an“office on the road” for travelling business professionals and remote workers, and a full range ofFedEx express and ground shipping services. The international centres in Australia, Canada, China,Japan, Korea, Kuwait, Mexico, the Netherlands, the United Arab Emirates and the United Kingdomfocus on business support services and corporate solutions for large, multinational companies.
