8-K: ODP Corporation Reports Lower Than Expected Q3 Results, Amends Full-Year Guidance

• The ODP Corporation announced its third-quarter 2024 results, revealing a challenging period with a significant 11% decrease in sales compared to the same quarter last year, totaling $1.8 billion.
• This decline was primarily driven by lower sales in both the Office Depot and ODP Business Solutions divisions, with the Office Depot division experiencing a 15% drop due to fewer retail locations and reduced customer traffic.
• GAAP operating income decreased to $102 million from $108 million year-over-year, while net income from continuing operations fell to $68 million, or $2.04 per diluted share, from $82 million, or $2.09 per diluted share.
• Adjusted EBITDA was $62 million, down from $138 million in the prior year, and adjusted earnings per share were $0.71, a significant decrease from $2.17 in the third quarter of 2023.
• The company repurchased 3 million shares for $102 million in the third quarter and a total of $295 million year-to-date, but plans to moderate the pace of future repurchases.
• ODP has revised its full-year 2024 guidance, projecting sales of approximately $7 billion, adjusted EBITDA between $260 million and $300 million, and adjusted earnings per share between $3.10 and $3.80.
• The company completed the sale of its Varis division subsequent to the quarter end, retaining a 19.9% minority interest.
• Despite the challenges, ODP is making progress on its B2B pivot, securing a major 10-year contract potentially worth $1.5 billion and expanding its supply chain services to new industry segments.

Score: 3

Explanation: The document presents a negative outlook due to lower than expected results, decreased sales, and reduced profitability. While there are some positive developments, such as the B2B contract and Varis sale, the overall tone is cautious and indicates significant challenges ahead.

• ODP secured a significant multi-year B2B contract potentially generating up to $1.5 billion in revenue over 10 years.
• The company is making progress on its B2B pivot and expanding into new, higher-growth adjacent industry segments.
• Veyer division is attracting new third-party relationships, including a major e-commerce platform.
• The company has completed the sale of the Varis division, streamlining operations.
• ODP has repurchased approximately $295 million of shares year-to-date, returning capital to shareholders.
• The company is making progress on Project Core, expecting to realize $50 million in-year savings and over $100 million annualized savings.

• Total sales decreased by 11% year-over-year, primarily due to lower sales in the Office Depot and ODP Business Solutions divisions.
• The Office Depot division experienced a 15% sales decrease, partly due to 53 fewer retail locations.
• Adjusted EBITDA decreased significantly to $62 million from $138 million in the prior year.
• Adjusted earnings per share decreased to $0.71 from $2.17 in the third quarter of 2023.
• Operating income for the Office Depot division decreased to $23 million from $66 million in the prior year.
• The company's results were below expectations, primarily driven by the retail division and challenging macroeconomic conditions.
• The company has suspended its full-year guidance for adjusted free cash flow.

• The company is facing challenging macroeconomic conditions that are impacting consumer and business spending.
• The retail division is experiencing lower sales due to reduced store count and decreased customer traffic.
• The company is operating in a highly competitive market, which is putting pressure on sales and pricing.
• The company's B2B pivot may not achieve the anticipated benefits.
• The company is exposed to risks related to supply chain disruptions and global sourcing activities.
• The company is subject to risks related to weather events, which can negatively affect operations and customer base.
• The company is exposed to risks related to the volatility in its common stock price.

The company has amended its full-year 2024 guidance, projecting sales of approximately $7 billion, adjusted EBITDA between $260 million and $300 million, and adjusted earnings per share between $3.10 and $3.80. The company has suspended its full-year guidance for adjusted free cash flow.

• Our results in the quarter were below expectations, primarily driven by our retail division, as challenging macroeconomic conditions impacted our performance, said Gerry Smith, chief executive officer of The ODP Corporation.
• Weaker macroeconomic conditions led to more cautious consumer and business spending, impacting demand in our B2C and B2B divisions during the highly competitive back-to-school season.
• Despite these challenges, were making significant progress on our B2B pivot and initiatives to improve top-line trends.
• We are excited about our progress and were allocating capital to fast-forward investments in our core business to capture these growth opportunities and generate the highest return for shareholders.
• Considering these core investments, along with our year-to-date performance against the challenging macroeconomic backdrop, we are amending our guidance for 2024.
• While the progress we are making will take time to reflect in our results, we are confident that we're on the right path, and our team is committed and focused on driving operational excellence to create long-term shareholder value.
• We've executed on our capital plan throughout the year, both investing in our business and returning approximately $295 million in capital to shareholders through share repurchases thus far in 2024, said Adam Haggard, senior vice president and interim co-chief financial officer of The ODP Corporation.
• As we move forward, we are prioritizing our capital allocation towards investing in the core business to capture high-return B2B growth opportunities that we believe will generate long-term value for shareholders.
• We have completed the sale of Varis that aligns with our stated objectives of finalizing our capital commitment to the business, while providing ODP with a continued invested interest in the opportunities ahead.

The results reflect a broader trend of challenges in the retail sector, particularly for companies with a significant brick-and-mortar presence, as well as the impact of macroeconomic conditions on business spending. The company's pivot to B2B is a strategic response to these challenges, aiming to capitalize on higher-growth opportunities in the business solutions and supply chain sectors.

• ODP's 11% sales decline is worse than some competitors in the office supply space, such as Staples, which has been focusing on diversifying its offerings and has seen less dramatic declines in revenue.
• The adjusted EBITDA margin of 3.5% is significantly lower than industry leaders in the B2B distribution space, such as W.W. Grainger, which typically operates with double-digit EBITDA margins.
• The company's B2B pivot is similar to strategies employed by other traditional office supply companies, but the success of this pivot will depend on ODP's ability to execute effectively and differentiate itself in the market.
• The 10% decline in comparable store sales for Office Depot is worse than the average decline seen in the retail sector, indicating a need for more aggressive strategies to attract and retain customers.
• The company's share repurchase program is a common strategy to return value to shareholders, but the decision to moderate the pace of repurchases suggests a shift in capital allocation priorities towards core business investments.

• Shareholders will be impacted by the lower than expected results and revised guidance, but may benefit from the share repurchase program and the company's focus on long-term value creation.
• Employees may be affected by the company's restructuring efforts and the shift in focus towards B2B operations.
• Customers may experience changes in the company's retail operations and product offerings as the company continues to refine its strategy.
• Suppliers may be impacted by the company's efforts to streamline its supply chain and expand into new industry segments.

• The company will continue to focus on its B2B pivot and invest in its core business to capture growth opportunities.
• ODP will continue to assess and refine its retail strategy.
• The company will continue to execute under its share repurchase authorization, but at a moderated pace.
• The company will continue to make progress under Project Core to realize cost savings.

• The company recognized $70 million of income related to legal matter monetization where the Company is engaged in legal proceedings as a plaintiff.

• September 28, 2024: End of the third quarter for which financial results are reported.
• November 6, 2024: Date of the earnings release and 8-K filing.
• December 31, 2025: Date until which ODP may fund up to $4 million of expenses for Varis following the sale.
• March 31, 2027: Expiration date of the $1 billion share repurchase authorization.