CEO Gerry Smith: ODP Strengthens B2B Focus, Investments, But Faces Challenges
- by nlqip
‘By leveraging our core strengths, we’re accelerating our pivot and gaining traction, securing key B2B contracts in our traditional business categories while expanding our influence in adjacent high-value industry sectors where our expertise also resonates,’ says ODP CEO Gerry Smith. ‘Although it will take time for these efforts to be fully reflected in our results, our progress is helping us regain momentum and position ODP to pursue sustainable high-growth market segments now and in the future.’
ODP, the parent company of Office Depot, used its fiscal 2024 third quarter financial report Wednesday to unveil an agreement with a new strategic reseller partner it expects will help drive new business by up to $1.5 billion over the next 10 years.
The agreement, with a partner which for now remains unnamed, came as the Boca Raton, Fla.-based company reported struggles in its fiscal third quarter and reduced guidance for the rest of the year.
The quarter was a tough one, said CEO Gerry Smith (pictured) in his prepared remarks during ODP’s Wednesday conference call with financial analysts.
[Related: Office Depot CEO: The ‘New ODP’ On Path To ‘Unlocking The Full Potential Of Our Business’]
“Our results in the third quarter were below expectations, driven primarily by challenges in a retail division’s performance,” Smith said. “Weak macroeconomic conditions impacted demand in both our B2C and B2B channels during what proved to be a highly competitive back-to-school season. This was further compounded by major hurricanes negatively affecting customer activity in some of our operations in our largest service areas in the South.”
However, Smith said, despite these challenges, the company is making significant progress on its strategic B2B pivot.
“By leveraging our core strengths, we’re accelerating our pivot and gaining traction, securing key B2B contracts in our traditional business categories while expanding our influence in adjacent high-value industry sectors where our expertise also resonates,” he said. “Although it will take time for these efforts to be fully reflected in our results, our progress is helping us regain momentum and position ODP to pursue sustainable high-growth market segments now and in the future.”
ODP’s retail operations took a big hit in the quarter thanks to the very competitive back-to-school season, which Smith said created headwinds in the company’s efforts to regain revenue traction. The largest impact was felt in ODP’s retail Office Depot business thanks to reduced consumer traffic and demand, which he said were not unique to ODP.
The impacts from a couple of major hurricanes to hit the Southeastern U.S. were also measurable in terms of temporary store closures and reduced customer activities, he said.
The company’s B2B-focused ODP Business Solutions operation was impacted by reduced customer spending during the quarter, although the top-line trends have now largely stabilized, Smith said.
“Daily sales have shown more consistency over the past several weeks and throughout much of the quarter, giving us growing confidence that we reached the bottom of the cycle,” he said. “Furthermore, we’re seeing a stronger pipeline of exciting opportunities, which we’re successfully converting into new business wins.”
ODP’s supply chain business continues to see progress as thecompany executes across its growth strategy, attracting new third-party customers and driving healthy increases in external revenue, up about 30 percent over last year, Smith said
The company’s Veyer Division, which offers nationwide supply chain, distribution, procurement and global sourcing, is also executing on its tech modernization roadmap and significantly advancing its capabilities and service levels, Smith said.
“Veyer indeed represents a key B2B pivot for ODP and its future is very bright,” he said.
Accelerated B2B Efforts
ODP is accelerating its pivot to B2B despite the existing perception of ODP as a retail-only business, Smith said.
“Our true strength lies in our robust B2B asset base built over the last 40 years,” he said. “Unlike traditional retailers, we can leverage our nationwide supply chain, extensive B2B customer base, compelling value proposition, and strong balance sheet to drive sustainable EBITDA and cash flow growth.”
ODP is making significant progress capturing major new business wins and building momentum in its Business Solutions Division, including the signing of an as-yet unnamed major B2B customer, Smith said.
“Our pipeline is expanding, and today we’re thrilled to announce a key new business win representing one of our largest B2B contracts in company history,” he said. “This new contract, worth up to $1.5 billion over a 10-year period, will allow our new partnership to utilize our comprehensive offerings, national distribution, and e-commerce platform to provide excellent service to customers. … We are very excited about this trajectory-changing win for ODP, and we’ve already begun the onboarding and transition process.”
The ODP Business Solutions Division is actively pursuing opportunities in higher growth adjacent industry segments with a focus on building long-term distribution relationships in product and service categories beyond ODP’s traditional office supply offerings, Smith said. The hospitality industry is one of the key focuses of that business, he said.
“Overall, we’re making significant strides in our B2B pivot, successfully capturing meaningful new business and positioning ODP to pursue growth in new valuable industry segments. … We’re accelerating our investment in core and B2B resources to capture these large opportunities and drive top line growth,” he said.
ODP is prioritizing investments in talent, operations, and technology at both Veyer and Business Solutions to position its B2B businesses for growth, Smith said.
“We’re very excited to invest in these B2B growth initiatives, as we believe this offers the best use of capital and generates the highest return on investment,” he said.
Office Depot By The Numbers
For its fiscal 2024 third quarter, ended September 28, ODP reported revenue of $1.78 billion, down 11 percent from the $2.01 billion the company reported for its fiscal 2023 third quarter.
That represents a revenue miss of $40 million compared to analysts’ expectations, according to Seeking Alpha.
Revenue included sales of $916 million for ODP’s B2B distribution business division, down 8 percent over last year; $861 million for the Office Depot retail and small business division, down 15 percent; and $1.2 billion for the Veyer supply chain, distribution, procurement, and global sourcing business.
For the quarter ODP reported GAAP net income of $68 million or $2.04 per share, down from last year’s $82 million or $2.09 per share.
Looking ahead, ODP updated its full fiscal 2024 revenue expectations to about $7 billion and non-GAAP earnings expectations to $3.10 to $3.80 per share. This compares to original expectations early this year of revenue between $7.44 billion and $7.67 billion.
It also compares to last year’s revenue of $7.83 billion and non-GAAP earnings of 92 cents per share.
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‘By leveraging our core strengths, we’re accelerating our pivot and gaining traction, securing key B2B contracts in our traditional business categories while expanding our influence in adjacent high-value industry sectors where our expertise also resonates,’ says ODP CEO Gerry Smith. ‘Although it will take time for these efforts to be fully reflected in our results,…
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