Office Depot CEO: The ‘New ODP’ On Path To ‘Unlocking The Full Potential Of Our Business’

‘We believe we’re only in the early stages of unlocking our potential through this transformation, which is only beginning to be recognized externally,’ says Gerry Smith, CEO of Office Depot parent company ODP.

ODP, the parent company of Office Depot, is continuing its transition from dependence on its traditional commercial business and looking more and more like a B2B product and service provider based on its first fiscal quarter 2023 results.

Boca Raton, Fla.-based ODP Wednesday said its first fiscal quarter revenue slipped about 3 percent compared with its first fiscal quarter 2022 but that the drop was the result of a slowdown in its retail business, including the closing of 73 of its retail locations over the year.

The fall in its retail revenue was partly offset by an increase in ODP Business Solutions, the company’s B2B distribution business.

[Related: Office Depot Parent ODP’s Top Compensated Executives In 2022]

ODP CEO Gerry Smith, in his prepared remarks to financial analysts on Wednesday’s quarterly financial analyst conference call, said that ODP’s transition to four business units paves the way for future growth by creating a much more dynamic and capable company.

ODP in 2022 reorganized into four separate business units, including its B2B-focused ODP Business Solutions Division, its retail-focused Office Depot Division, its supply chain and procurement-focused Veyer Division, and its B2B marketplace-focused Varis Division.

“[This] allows us to more fully utilize our assets, provide greater transparency into the value of our business, and create new avenues for growth,” Smith said. “We are a new ODP, and we’re on a path to unlocking the full potential of our business and setting us apart from others in the industry. We believe we’re only in the early stages of unlocking our potential through this transformation, which is only beginning to be recognized externally.”

ODP has over the past six years since Smith joined the company streamlined its cost structure, reducing cost of operations with over $500 million removed from the business from an SG&A perspective, realigned its assets to derive stability and long-term growth, and drove better performance across all its business, he said.

“This has resulted in a stronger foundation and has positioned ODP to pursue new and exciting growth opportunities,” he said.

The first of the four business units, ODP Business Solutions, is a large and growing B2B distribution business with over $4 billion in annual revenue serving small businesses to enterprises with core business products and adjacent products including janitorial sanitation, cleaning and break room products, and copy and print products and services, Smith said. The janitorial sanitation business alone generates about $700 million on an annual basis, he said.

“ODP Business Solutions is focused on growing its business, expanding to new product categories, and growing its margin profile back to pre-pandemic levels, with a goal of 5 percent-plus EBITDA margins along with strong cash flow conversion,” he said. “This is a highly valuable B2B distribution business with a solid path for long-term growth.”

The second business unit, Office Depot, has transformed into a true omnichannel consumer business with a profitable retail footprint and an e-commerce platform, Smith said.

“Office Depot continues to be a cash generation engine for ODP,” he said.

The third is Veyer, which is ODP’s supply chain services and sourcing provider and one of the largest and most unique supply chain operations in North America, with a capability to serve 98.5 percent of North American ZIP codes with next-day service, Smith said.

Veyer currently serves its internal customers, ODP Business Solutions and Office Depot, with best-in-class, low-cost, efficient service, while also leveraging its existing capacity providing logistics services to third-party customers, Smith said.

“We have just begun to unleash Veyer’s unique and valuable assets and capabilities,” he said. “These include a large private fleet of approximately 600 vehicles; over 9 million square feet of distribution and logistics space; a national network of approximately 100 facilities, including distribution centers, cross-docks, and import facilities; a global sourcing presence; and numerous long-standing relationships with international and national carriers including last-mile providers.”

The fourth, Varis, is a transformative, digitally native B2B procurement platform business that ODP has been creating over the past couple of years to help transform the complete procurement ecosystem for buying organizations and the suppliers that serve them, Smith said.

“The market potential for Varis is huge,” he said. “Over $4 trillion in gross indirect transaction volume exists within our target markets. While we’re still in the early stages, having recently launched his platform at the end of last year, Varis is making good progress, adding customers to its platform and enhancing its tech capabilities.”

Smith said ODP remains cautiously optimistic as it navigates a challenging macroeconomic environment and its related negative impact on consumer activity.

“We’ve maintained our previously issued guidance for the year and remain in a position of strength with a low-cost business model mindset, diverse routes to market and a strong balance sheet,” he said. “As we move through the year and monitor consumer activity, we will continue to prioritize capital allocation while prudently managing our four-business-unit model while remaining focused on delivering strong shareholder returns.”

For its fiscal first quarter 2023, which ended April 1, ODP reported total revenue of $2.11 billion, down 3 percent from the $2.18 billion the company reported for fiscal first quarter 2022.

That included ODP Business Solutions sales of $1.01 billion, up from $978 million; Office Depot sales of $1.09 billion, down from $1.19 billion; Veyer sales of $7 million, up from $4 million; and Varis sales of $2 million, which was flat with last year.

The sales for those business units were external sales. ODP also reported internal ODP Business Solutions sales of $4 million, down from $6 million; Office Depot internal sales of $9 million, up from $7 million; and Veyer internal sales of $1.41 billion, down from $1.53 billion.

ODP also reported GAAP net income for the quarter of $72 million, or $1.71 per share, up from last year’s $55 million, or $1.08 per share. On a non-GAAP basis, the company reported net income of $75 million, or $1.78 per share, up from last year’s $64 million, or $1.27 per share.

Looking ahead, ODP is guiding sales for fiscal 2023 of $8.0 billion to $8.4 billion, which is down slightly from last year’s revenue of $8.49 billion. It is also expecting non-GAAP earnings per share of $4.50 to $5.10, up from last year’s $3.73 per share.