The ODP Corp (ODP) Q1 2025 Earnings Call Highlights: Navigating Challenges with Strategic Growth Initiatives

The ODP Corp (ODP) reports a mixed quarter with significant cash flow improvements amid revenue declines and strategic pivots.

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May 08, 2025
Summary
  • Total Revenue: $1.7 billion, a 9% decline compared to the first quarter of last year.
  • Adjusted EBITDA: $76 million, compared to $91 million in the prior year's first quarter.
  • Adjusted Free Cash Flow: $45 million, more than double the $17 million from the same period last year.
  • Operating Cash Flow: $57 million, including $10 million in restructuring spend.
  • GAAP Operating Loss: $32 million, compared to GAAP operating income of $41 million in the prior year period.
  • Adjusted Operating Income: $54 million, compared to $66 million in last year's first quarter.
  • Adjusted Net Income: $32 million or $1.06 per diluted share, compared to $50 million or $1.31 per diluted share in the prior year period.
  • Store Closures: 12 retail stores closed in the quarter, with 857 stores remaining at quarter-end.
  • Comparable Store Sales: Improved by 500 basis points year-over-year.
  • Veyer Third-Party Revenue: $17 million, up 89% over last year.
  • Total Liquidity: $653 million, consisting of $185 million in cash and cash equivalents, and $468 million in available credit.
  • Total Debt: $262 million.
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Release Date: May 07, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • The ODP Corp (ODP, Financial) reported a significant increase in adjusted free cash flow, generating $45 million compared to $17 million in the same period last year.
  • The company's consumer division, Office Depot, showed improved topline trends and higher margins, contributing to stronger cash flow generation.
  • ODP's supply chain business, Veyer, achieved over 85% year-over-year revenue growth from third-party customers, highlighting strong demand for its services.
  • The company is making progress in its B2B pivot and expansion into higher-growth segments like hospitality, with new business wins expected to contribute more significantly in the second half of the year.
  • ODP maintains a solid balance sheet with total liquidity of $653 million, providing flexibility for future growth initiatives.

Negative Points

  • Total revenue for the quarter declined by 9% compared to the first quarter of last year, impacted by fewer stores, reduced retail and online traffic, and lower sales within ODP Business Solutions.
  • The company incurred $86 million in charges related to restructuring expenses and asset impairments, resulting in a GAAP operating loss of $32 million.
  • ODP's B2B business faced continued soft market demand and the impact of a large customer loss from the previous year, affecting top-line trends.
  • Onboarding of new business contracts has been slower than anticipated, delaying their contribution to revenue growth.
  • The company is still in the early stages of its expansion into the hospitality market, with inventory build and sourcing taking longer than expected.

Q & A Highlights

Q: Could you provide more insight into the momentum on the retail side of the business and the sales strategies driving improved performance?
A: Gerry Smith, CEO, explained that the retail strategy focuses on driving cash and margin. Key elements include enhancing customer interactions, revising merchandising strategies, implementing a daily management system, and leveraging a gamified system to track performance. These efforts have led to a significant improvement in comparable store sales, with April showing even better results.

Q: Considering the improved results, how should we think about the pace of store closures going forward?
A: Gerry Smith, CEO, stated that the Optimized for Growth plan will focus on optimizing cash flow and margin dollars. The company will evaluate store performance and adjust plans accordingly, aiming to generate more cash flow and strengthen the balance sheet.

Q: What has been holding up the onboarding process with some of the new contracts?
A: Adam Haggard, Co-CFO, noted that delays are due to longer lead times in the hospitality sector and the complexity of onboarding large contracts like CoreTrust. The company is hiring qualified individuals and implementing a daily focus to expedite the process, expecting improvements in the second half of the year.

Q: What categories within the retail business have strengthened, and is there evidence of demand pull forward due to potential tariff impacts?
A: Gerry Smith, CEO, mentioned success in non-tariff categories and a shift in merchandising strategy to offer more value to customers. While there was a brief spike in furniture and tech sales, it normalized quickly. The company has mitigated tariff exposure effectively.

Q: How will the tariff situation impact ODP Corp, and what measures are in place to mitigate it?
A: Gerry Smith, CEO, explained that the company has mitigated most impacts by adjusting pricing strategies and shifting sourcing away from China. They have diversified their supply chain and are confident in their ability to manage potential tariff impacts.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.