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November 3, 2022

Office Depot Discusses Realignment After Tough Q3

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Even as the company announced third-quarter earnings that fell short of a Wall Street estimate, ODP Corp. made its case to investors regarding how its realigned structure would drive financial advances.

In the third quarter, ODP net income from continuing operations was $67 million, or $1.36 per diluted share, versus $73 million, or $1.33 per diluted share, in the year-prior quarter.

Adjusted for one-time events, net income from continuing operations was $73 million, or $1.48 per diluted share, versus $96 million, $1.76 per diluted share, in the year-earlier quarter, the company reported.

ODP missed a Yahoo Finance-published analyst consensus earnings per share estimate of $1.72 per adjusted diluted share.

Sales were $2.17 billion versus $2.18 billion in the year-before quarter. Operating income was $84 million versus $104 million in the year-previous period while adjusted operating income was $95 million versus $122 million.

In the Office Depot Division, which includes retail stores, sales were $1.1 billion in the third quarter down 8% compared to the 2021 period partially due to 75 fewer retail outlets operating year over year due to planned store closures, as well as lower demand relative to the year-past period in certain product categories. ODP closed 11 retail locations in the quarter and had 1009 stores at the period’s end.

Conditions related to the recovery from the pandemic impacted division sales as a greater percentage of customers returned to the office, which pressured store traffic and demand relative to 2021.

Increases in sales through buy online, pick-up in-store and strong sales per shopper partially offset the pandemic-associated conditions.

Division operating income was $83 million versus $108 million in the year-past period.

In a virtual investor meeting dubbed Unlocking our Potential that coincided with the release of third-quarter financial results, ODP highlighted its newly realigned business unit structure and capital allocation plan and outlined its strategy to unlock the power of its assets and showcase its path to drive sustained value for shareholders, as it stated.

“Over the past two years, we’ve worked to complete our transformation into four distinct, synergistic business units that position us to better meet customers’ needs, drive a more stable foundation to pursue growth, and expand our margins,” said Gerry Smith, ODP CEO, in association with the presentation. “This realigned framework builds on our track record of delivering strong operating results and generating consistent free cash flow, even in times of challenging market conditions.

“Our efforts have led us to where we are today: a much stronger company with a strong balance sheet, a low-cost business model, and a newly realigned operating foundation designed to improve our ability to pursue profitable growth opportunities and more fully reflect the power of our businesses. As a key component of our commitment to returning value to shareholders, we announced a $1 billion share repurchase plan through 2025.”

In announcing the third quarter results, Smith said, the structure has provided greater transparency for shareholders, unlocks business potential and assures greater stability and opportunity for long-term growth.

“Our team continued to deliver against a challenging macroeconomic environment, driving solid performance, as the strength of our distribution platform and flexible pricing strategies helped offset some of the market-wide challenges related to supply chain constraints, inflation, as well as a more competitive back-to-school environment,” he said. “Our B2B distribution business, ODP Business Solutions, drove strong performance as back-to-office trends continued to gain traction, helping to drive strong revenue results and margins that are on a path to exceed pre-pandemic levels in the future. In our consumer channel, Office Depot, we maintained high customer satisfaction levels and drove solid operating margin performance, despite lower traffic and a competitive back-to-school selling season. Overall, our team continued to focus on execution and remained committed to our low-cost model approach, enabling us to deliver $95 million in adjusted operating income and strong cash flow in the quarter.”

Smith added that ODP is “excited with the launch of Veyer, our supply chain and logistics division, and the reporting of Varis, our B2B digital platform business that creates a leading edge marketplace experience for buyers and suppliers. These two divisions provide attractive long-term growth opportunities for shareholders.”

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