10-Q: ODP Corp. Reports Q3 Decline Amidst Atlas Acquisition & Restructuring

The ODP Corporation reported significant declines in Q3 and year-to-date sales and earnings, while progressing with its acquisition by Atlas Holdings and a major B2B-focused restructuring plan.

Summary

• The ODP Corporation entered into a definitive agreement on September 22, 2025, to be acquired by an affiliate of Atlas Holdings for $28.00 per share in cash, with the transaction anticipated to close before the end of 2025.
• Consolidated sales for the third quarter of 2025 decreased by $155 million (9%) to $1,625 million compared to $1,780 million in the prior year period.
• Year-to-date 2025 consolidated sales were $4,911 million, down $456 million (8%) from $5,367 million in the same period of 2024.
• Net income from continuing operations for Q3 2025 was $23 million, a significant decrease from $68 million in Q3 2024.
• Year-to-date 2025 saw a net loss from continuing operations of $6 million, compared to a net income of $95 million in the prior year period.
• Diluted earnings per share from continuing operations for Q3 2025 was $0.72, down from $2.04 in Q3 2024.
• Year-to-date 2025 diluted loss per share from continuing operations was $(0.21), a decline from diluted earnings per share of $2.65 in the prior year period.
• The 'Optimize for Growth' restructuring plan, approved in February 2025, aims to expand B2B market presence (hospitality, healthcare, 3PL) and reduce the consumer business retail footprint, with estimated cash costs of $185 million to $230 million through 2028.
• As part of the 'Optimize for Growth' plan, 12 retail stores were closed in Q3 2025 (44 year-to-date), and one distribution facility and 15 satellite locations were closed in Q3 2025 (four distribution facilities and 16 satellite locations year-to-date).
• Total liquidity at September 27, 2025, was $730 million, comprising $182 million in cash and cash equivalents and $548 million of available credit under the Fourth Amended Credit Agreement.
• The Varis Division was sold on October 18, 2024, and is now presented as discontinued operations; ODP retained a 19.9% minority interest.
• No shares were repurchased under the $1 billion stock repurchase program in Q3 or year-to-date 2025, with $725 million remaining available.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to significant declines in sales, operating income, and net income across both quarterly and year-to-date periods. While liquidity is strong and the company is undergoing a strategic transformation and acquisition, the immediate financial performance is weak. The acquisition by Atlas Holdings provides a clear exit for shareholders at a fixed price, but the underlying business performance is deteriorating, and the restructuring involves substantial costs and asset impairments. The moderation of share repurchases and suspension of dividends also contribute to a cautious outlook.

Positives

• Total liquidity increased to $730 million at September 27, 2025, from $644 million at December 28, 2024, driven by higher cash and available credit.
• Net cash provided by operating activities of continuing operations increased to $163 million year-to-date 2025, up from $125 million in the prior year period.
• Cash used in investing activities of continuing operations significantly improved to $(2) million year-to-date 2025, compared to $(78) million in the prior year period.
• The Office Depot Division's operating income increased by 35% to $31 million in Q3 2025, primarily due to $27 million lower selling, general and administrative expenses from store closures and cost reduction initiatives.
• Veyer Division's external sales increased by 64% to $23 million in Q3 2025 and 76% to $60 million year-to-date 2025, driven by new third-party supply chain services customers.
• The company recognized a $17 million gain on disposal of an owned distribution facility in Q3 2025 as part of the 'Optimize for Growth' restructuring plan.
• Long-term debt, net of current maturities, decreased to $141 million at September 27, 2025, from $270 million at December 28, 2024.

Negatives

• Consolidated sales decreased by 9% in Q3 2025 and 8% year-to-date 2025, primarily due to lower demand from B2B customers and planned retail store closures.
• Net income from continuing operations decreased by 66% to $23 million in Q3 2025 and resulted in a net loss of $6 million year-to-date 2025.
• Diluted EPS from continuing operations fell to $0.72 in Q3 2025 from $2.04 in Q3 2024, and to $(0.21) year-to-date 2025 from $2.65 year-to-date 2024.
• ODP Business Solutions Division sales decreased by 6% in Q3 2025 and 7% year-to-date 2025, with operating income down 50% and 39% respectively, due to lower demand and deleveraging of supply chain costs.
• Office Depot Division sales decreased by 13% in Q3 2025 and 12% year-to-date 2025, mainly due to planned store closures and lower demand at retail stores and eCommerce.
• Total gross profit decreased by $33 million (9%) in Q3 2025 and $114 million (10%) year-to-date 2025, mainly due to lower sales volume.
• Year-to-date 2025 gross margin decreased to 20% from 21% in the prior year, primarily due to deleveraging of supply chain and occupancy costs.
• Asset impairment charges totaled $8 million in Q3 2025 and $49 million year-to-date 2025, mainly related to operating lease right-of-use assets for retail stores and supply chain facilities, and software.

Risks

• Failure to complete the acquisition by Atlas Holdings on agreed terms, within the expected timeframe, or at all, could materially adversely affect the business, financial condition, cash flows, and stock price.
• The company may be required to pay a termination fee of approximately $37 million to Atlas Holdings under certain circumstances if the merger agreement is terminated.
• Business uncertainties, operational disruptions, and contractual restrictions during the pendency of the acquisition could materially harm business operations, strategic initiatives, and relationships with stakeholders.
• The merger agreement contains provisions that could discourage potential competing acquirers or result in lower acquisition proposals.
• Significant direct and indirect costs will be incurred as a result of the transaction, even if it is not completed.
• Directors and executive officers have financial interests in the transaction that may differ from other stockholders.
• Litigation challenging the merger agreement may prevent the transaction from being consummated within the expected timeframe or at all.
• Stockholders will forego the opportunity to benefit from potential future appreciation in the value of the company if the transaction is completed.
• Additional tariffs announced by the U.S. government on goods from China and other Asia regions could materially impact results of operations in 2025 through changes in demand and potentially recessionary macroeconomic conditions.
• Macroeconomic factors, including a weaker U.S. economy, higher interest rates, and reduced consumer/business spending, continue to adversely impact sales and demand for products and services.
• The company's ability to realize deferred tax assets in the U.S. and foreign jurisdictions depends on future pretax income projections, which could impact the valuation allowance.
• Changes in pretax income projections and the mix of income across jurisdictions could impact effective tax rates in future quarters.
• The recoverability of goodwill at the reporting unit level is subject to future operating results; deterioration could lead to impairment charges.

Future Outlook

The company anticipates the acquisition by Atlas Holdings to close before the end of 2025, which will result in ODP becoming a privately held company. The 'Optimize for Growth' restructuring plan, expected to be completed through 2028, will significantly reduce the retail footprint and re-allocate capital towards B2B growth opportunities in hospitality, healthcare, and third-party logistics. Sales in the expanded hospitality supplies category are expected to continue increasing in Q4 2025. The company expects to substantially moderate the pace of stock repurchases in the near-term and does not anticipate declaring cash dividends in the foreseeable future due to the ongoing macroeconomic environment and strategic initiatives. The company continues to evaluate the impact of new tariffs and tax law changes (OBBB Act, Pillar Two) but does not currently expect a material adverse impact on its 2025 effective tax rate or tax liabilities.

Management Comments

• We are closely monitoring the changes in trade policy and tariffs, and continue to analyze the impact of tariffs on our business and actions we can take to mitigate their impact.
• We currently believe that, based on our financial position, including our cash and cash equivalents on hand, availability of funds under the Fourth Amended Credit Agreement, and future year cash flows generated from operations, we will be able to fund our working capital, capital expenditures, debt repayments, common stock repurchases, dividends (if any), merger integration and restructuring expenses, and future acquisitions consistent with our strategic growth initiatives for at least the next 12 months.
• Considering the ongoing macroeconomic environment and our current strategic initiatives, we expect to continue to substantially moderate the pace of stock repurchases in the near-term.
• We do not anticipate declaring cash dividends in the foreseeable future.

Industry Context

The ODP Corporation is undergoing a significant strategic transformation, shifting its focus from a broad omni-channel presence, including a large consumer retail footprint, towards a more specialized business-to-business (B2B) distribution platform. This move aligns with broader industry trends where traditional retail is facing increasing pressure from e-commerce and specialized B2B solutions. The expansion into hospitality, healthcare, and third-party logistics (3PL) reflects an effort to diversify revenue streams and capitalize on growing sectors, moving beyond traditional office supplies. The planned reduction of the retail footprint is a common strategy for legacy retailers adapting to changing consumer behavior and optimizing operational costs. The acquisition by Atlas Holdings indicates a potential move towards private ownership, which could allow for more agile strategic shifts away from public market pressures, focusing on long-term value creation through operational efficiencies and B2B market penetration.

Comparison to Industry Standards

• NA

Legal Proceedings

• The company is involved in litigation arising in the normal course of business, including claims asserted as class action suits, but does not believe contingent liabilities will materially affect its financial position, results of operations, or cash flows.
• Sales to and transactions with government customers may be subject to lawsuits, investigations, audits, and reviews by governmental authorities and regulatory agencies.
• OfficeMax is named as a defendant in lawsuits, claims, and proceedings related to the operation of paper and forest products assets prior to their sale in 2004, and asbestos-related injuries from prior operations.
• The company has made provision for losses with respect to pending OfficeMax proceedings and for environmental liabilities at certain sites where hazardous substances or contaminants may be located, with a combined estimated range of reasonably possible losses of approximately $15 million to $25 million.

Stakeholder Impact

• Shareholders: Will receive $28.00 per share in cash upon completion of the Atlas Holdings acquisition, foregoing future potential appreciation but gaining certainty. Face risks if the transaction fails to close.
• Employees: Impacted by the 'Optimize for Growth' restructuring plan, which includes eliminating redundant positions and severance related to corporate, retail store, and distribution facility employees.
• Customers: B2B customers may benefit from expanded offerings in hospitality, healthcare, and 3PL. Consumer customers may experience a reduced retail footprint.
• Suppliers: Relationships may be impacted by the acquisition and strategic shifts, including potential changes in sourcing strategies due to tariffs.
• Creditors: The company maintains strong liquidity and compliance with credit facility covenants, indicating a stable position for debt obligations.

Next Steps

• Complete the acquisition by Atlas Holdings, anticipated before the end of 2025, subject to stockholder and regulatory approvals.
• Continue implementing the 'Optimize for Growth' restructuring plan through 2028, including further retail store and distribution facility closures.
• Re-allocate capital towards investments in resources and infrastructure to drive growth in expanded B2B market segments (hospitality, healthcare, 3PL).
• Monitor and mitigate the impact of new U.S. government tariffs on imported goods.
• Evaluate the impact of new FASB accounting standards on income taxes and income statement expense disaggregation.
• Continue to assess the realizability of deferred tax assets in the U.S. and foreign jurisdictions.
• Complete the buyout of the UK pension plan and transfer of future benefit obligations, anticipated in 2026.

Key Dates

Recommendation

The company is currently under a definitive merger agreement to be acquired by Atlas Holdings for $28.00 per share. This provides a clear, fixed value for shareholders, limiting both upside potential and downside risk from operational performance, assuming the deal closes. While the underlying business shows significant declines in sales and profitability, the acquisition price acts as a floor. An investor should 'hold' to realize the acquisition value, unless a superior offer emerges or there's a high probability the deal will not close. Given the customary closing conditions and regulatory approvals, there is some residual risk, but the fixed cash consideration makes it a 'hold' for most investors awaiting deal completion.

Keywords

Office Depot, ODP Corporation, Atlas Holdings, Acquisition, Merger Agreement, 10-Q, Quarterly Report, Restructuring, B2B Solutions, Retail Closures, Supply Chain, Veyer, Financial Performance, Earnings, Sales Decline, Asset Impairment, Corporate Governance, Liquidity, Tariffs