Office Depot Parent ODP’s Solution Provider Business Racked Up $1B In Q3 Sales

‘We have built a very strong customer base, and [ODP Business Solutions] continues to exhibit strong growth and is clearly on a path to expand its margins back to and beyond pre-COVID levels. Its role in the portfolio is to expand margins [and] drive growth and cashflow,’ says ODP CEO Gerry Smith.

ODP Business Solutions, the B2B business unit of Office Depot and OfficeMax parent ODP, generated $1 billion in sales in its most recent quarter.

Revenue for the business unit, one of four business units of ODP, was reported separately for the first time Wednesday when ODP broke its quarterly financial report out according to its four new business units.

ODP, the parent company of Office Depot and OfficeMax, on Wednesday broke its quarterly financial report out according to its four new business units, with its B2B unit success helping to overcome a drop in its B2C business.

ODP’s third fiscal quarter 2022 is the first time the company is reporting results for each of its four business units, ODP CEO Gerry Smith told financial analysts during Wednesday’s quarterly financial presentation, which corresponded with the company’s annual investor’s day presentation.

Smith also took time to reaffirm ODP’s guidance for full year 2022.

[Related: 4 Key Takeaways From Office Depot’s Sale Of CompuCom]

“Let me say that again,” he said. “We are reaffirming guidance for 2022.”

Smith told analysts during his prepared remarks that ODP has completed the realignment of its operating structure that supports its new four business unit model.

“These four business units will work seamlessly together to allow us to pursue new growth opportunities, to improve asset utilization, and to more fully reflect the power of our businesses and unlock shareholder value,” he said. “Everything that we‘ve done over the past few years have led us to this point in our journey. It is a culmination of a significant amount of work by our team. And it is a reflection of the power of the assets that we control, the flexibility of our platform, and the growing demand from our customers from the services and products we provide.”

The first of the four is ODP Business Solutions, which is essentially ODP’s enterprise contract business from its prior BSD (business solutions division) segment. ODP Business Solutions serves small, medium, and enterprise level companies with both core business supplies as well as other categories including cleaning and break room, janitorial and sanitation, tech workspaces, and copy and print services, Smith said.

“We have built a very strong customer base, and this business continues to exhibit strong growth and is clearly on a path to expand its margins back to and beyond pre-COVID levels,” he said. “Its role in the portfolio is to expand margins [and] drive growth and cashflow.”

The second is the Office Depot business unit, which Smith described as a true omni-channel consumer business combining ODP’s retail store footprint and e-commerce platform that was previously included in its business services BSC business segment.

“Office Depot continue to be a strong generator of cash flow for the business,” he said. “And now as an omni-channel business, we see continued stabilization going forward.”

The third is Veyer, which is the supply chain and logistics company that ODP has developed over more than three decades. That operation was previously embedded as a primary support cost function for ODP, but is now separated into its own operating segment leveraging world-class capabilities to bring a strong value proposition to both internal and external customers, Smith said.

“Veyer’s capabilities include nationwide coverage, next-day delivery options, desktop delivery, and it can provide services such as just-in-time logistics as well as leverage its proprietary tools like flow path analytics to provide greater insight to drive efficiencies across our network,” he said. “These are all capabilities that only a few supply chain operators possess today.”

Veyer will serve its internal clients, ODP business solutions, and Office Depot through established commercial agreements while using excess capacity to serve external third-parties with less-than-truckload and backhaul services, Smith said.

“Over time, Veyer will expand his capabilities to full logistics and 3PL (third-party logistics) services,” he said. “We are very excited about Veyer’s path, and we expect it will help us or fully utilize our assets and generate strong EBITDA contribution in the future.”

The fourth business unit, Varis, is a digitally-native B2B procurement platform business that ODP has been creating over the last couple of years, Smith said. It is focused on creating a more modern experience for B2B buyers and suppliers, he said.

“Varis provides a unique experience for its customers, and helps solve many of the pain points that exist in the market today,” he said. “It allows buyers to reduce costs, control spend, improve compliance, automate payment options, and gain greater spin visibility. For suppliers, it reduces customer acquisition costs, improves ability to predict and plan for demand, and expands channels to reach more customers. [It] creates a different channel opportunity for growth, supports our B2B distribution business, and creates a highly scalable digital platform for the future.”

For the company’s third fiscal quarter, ODP delivered solid operating performance despite the continued industry wide challenges and related to inflation and supply chain constraints, Smith said.

“Our revenue performance was in line with last year as return-to-the-office trends helped drive stronger top-line performance at ODP Business Solutions, which was offset by lower revenue and our Office Depot business unit,” he said. “Office Depot‘s revenues were lower related to fewer stores and service relatively last year, as well as lower comparable traffic trends as COVID conditions continue to recover and as we experienced softer demand during a highly competitive back-to-school season.”

Operating income in the quarter was lower than last year largely related to the revenue mix between ODP Business Solutions and Office Depot, but as Varis continues to accelerate, the company expect this impact to decelerate on a comparable basis,” he said.

“Overall, we are encouraged by our performance this year, and we are reaffirming our full year guidance for 2022,” he said. “Under our four BU structure, we remain well positioned with a flexible business model and a low-cost approach as we close out the year.”

For its third fiscal quarter 2022, which ended September 24, ODP reported total revenue of $2.17 billion, down slightly from the $2.18 billion the company reported for its third fiscal quarter 2021.

This included ODP Business Solutions Division revenue of $1.03 billion, up 9 percent over last year; Office Depot Division sales of $1.12 billion, down 8 percent over last year; Veyer Division sales of $1.48 billion, down 3 percent over last year, and Varis Division sales of $2 million, flat over last year.

ODP Business Solutions’ revenue for the first three quarters of fiscal 2022 reached $3.00 billion, up year-over-year from $2.70 billion.

While ODP Business Solutions and Office Depot revenue was almost all generated by external sales, only $7 million of Veyer’s sales came from external customers.

For the quarter, ODP reported net income of $67 million or $1.35 per share, down from last year’s $101 million or $1.85 per share. On a non-GAAP basis, ODP reported adjusted EBITDA of $131 million, down from last year’s $162 million.

Investors seemed to approve of ODP’s new reporting structure by driving the company’s share prices up by nearly 4 percent to $40.94 per share near the close of the trading day.