The ODP (ODP) - 2024 Q1 - Quarterly Results

The ODP Corporation First Quarter 2024 Results First Quarter 2024 Financial Highlights The company reported a challenging first quarter with an 11% sales decline and significantly lower profitability metrics Q1 2024 Consolidated Financial Summary (GAAP & Non-GAAP) | Selected GAAP and Non-GAAP measures: | 1Q24 | 1Q23 | | :--- | :--- | :--- | | Sales | $1,871M | $2,108M | | Sales change from prior year period | (11)% | | | Operating income | $18M | $95M | | Adjusted operating income | $51M | $99M | | Net income from continuing operations | $15M | $72M | | Diluted earnings per share from continuing operations | $0.40 | $1.71 | | Adjusted net income from continuing operations | $40M | $75M | | Adjusted earnings per share from continuing operations (fully diluted) | $1.05 | $1.78 | | Adjusted EBITDA | $82M | $131M | | Operating Cash Flow from continuing operations | $38M | $157M | | Free Cash Flow | $3M | $128M | - The decrease in reported sales was primarily driven by lower sales in the Office Depot and ODP Business Solutions Divisions[3] - Operating cash flow from continuing operations was $38 million, a significant decrease from $157 million in the prior year period[5] - The company ended the quarter with $971 million of total available liquidity, including $282 million in cash and cash equivalents[5] Management Commentary and Strategic Decisions Management addressed a slow start by accelerating 'Project Core' and pursuing a sale of the Varis business unit - The company launched and is accelerating its 'Project Core' initiatives to offset the impact of the challenging business environment and remains committed to its 2024 guidance[5] - The Board of Directors has approved a strategic decision to pursue a sale of the Varis business unit[6] - The company has increased its pace of share repurchases, buying back approximately $90 million of its stock since the beginning of the year[5] - Management cited more cautious spending activity and delays in onboarding new customers at ODP Business Solutions, along with reduced consumer activity at Office Depot, as key performance headwinds[5] Divisional Performance Sales declined in the ODP Business Solutions and Office Depot divisions, while Veyer's third-party logistics grew ODP Business Solutions Division The B2B division's sales decreased by 8% to $0.9 billion due to weaker macroeconomic conditions and cautious spending ODP Business Solutions Q1 Performance | Metric | 1Q24 | 1Q23 | | :--- | :--- | :--- | | Reported Sales | $0.9B | $1.0B | | Sales Change | -8% | +3% | | Operating Income | $30M | $39M | | Operating Margin | 3% | 3.6% | - Adjacency categories, including cleaning, furniture, and technology, constituted 43% of the division's total sales[12] Office Depot Division The retail division's sales fell 14% to $0.9 billion, driven by store closures and a 10% decline in comparable sales Office Depot Division Q1 Performance | Metric | 1Q24 | 1Q23 | | :--- | :--- | :--- | | Reported Sales | $0.9B | $1.1B | | Sales Change | -14% | -8% | | Operating Income | $50M | $85M | | Operating Margin | 5% | 8% | | Comparable Store Sales | -10% | -3% | - The company closed 13 retail stores during the quarter, ending with 903 stores[13] Veyer Division The logistics division's operating income decreased due to lower internal sales, but third-party customer sales grew 29% - Operating income was $9 million, down from $15 million in the prior year, driven by lower sales to internal customers[14] - Sales and EBITDA generated from third-party customers showed significant growth, increasing 29% and 40% respectively, reaching $9 million in sales and $3 million in EBITDA[15] Varis Division The B2B platform's revenue was flat at $2 million, with an improved operating loss as the company plans its sale Varis Division Q1 Performance | Metric | 1Q24 | 1Q23 | | :--- | :--- | :--- | | Revenue | $2M | $2M | | Operating Loss | $(14)M | $(17)M | - The Board of Directors has approved a plan to sell the Varis business, with activities commencing immediately[21][6] Capital Allocation, Balance Sheet, and Cash Flow The company accelerated share repurchases and maintained solid liquidity despite a sharp decline in operating cash flow - The company repurchased 957 thousand shares for $50 million in Q1 2024 and an additional $40 million post-quarter, totaling approximately $90 million year-to-date[16] - As of March 30, 2024, ODP had total available liquidity of $971 million, consisting of $282 million in cash and $689 million in available credit[17] - Cash from operating activities was $38 million, compared to $157 million in Q1 2023, with the change largely related to the timing of working capital[17] - Capital expenditures were $35 million, up from $27 million in the prior year, reflecting investments in digital transformation and distribution[18] Project Core and 2024 Guidance ODP accelerated its 'Project Core' savings plan and increased its full-year 2024 guidance for key profitability metrics - Project Core is being accelerated to maximize savings, with expected in-year savings of approximately $50 million and annualized savings over $100 million[21] - As part of Project Core, the Board of Directors has approved a plan to sell the Varis business[21] Updated Full-Year 2024 Guidance | Metric | Previous FY 2024 Guidance | Updated FY 2024 Guidance | | :--- | :--- | :--- | | Sales | Decline of 2% - 5% | Affirmed Lower End | | Adjusted EBITDA | $410 million - $430 million | Increased to $430 million - $450 million | | Adjusted Operating Income | $280 million - $300 million | Increased to $320 million - $340 million | | Adjusted Earnings per Share | $5.60 - $5.80 per share | Increased to $6.30 - $6.60 per share | | Adjusted Free Cash Flow | Greater than $200 million | Affirmed | Financial Statements and Reconciliations Unaudited statements detail declines in sales and profitability, a reduced cash balance, and lower operating cash flow Consolidated Statements of Operations Q1 sales were $1.871 billion, down from $2.108 billion, with net income falling sharply to $15 million Q1 2024 vs Q1 2023 Income Statement Highlights (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Sales | $1,871 | $2,108 | | Gross Profit | $410 | $481 | | Operating Income | $18 | $95 | | Net income from continuing operations | $15 | $72 | Consolidated Balance Sheets Total assets decreased to $3.735 billion from $3.886 billion at year-end 2023, with cash declining to $282 million Balance Sheet Highlights (in millions) | Account | March 30, 2024 | December 30, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $282 | $392 | | Total current assets | $1,524 | $1,678 | | Total assets | $3,735 | $3,886 | | Total current liabilities | $1,624 | $1,693 | | Total liabilities | $2,666 | $2,785 | | Total stockholders' equity | $1,069 | $1,101 | Consolidated Statements of Cash Flows Net cash from operating activities decreased significantly to $38 million from $157 million in the prior-year period Q1 Cash Flow Highlights (in millions) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $38 | $157 | | Net cash used in investing activities | $(34) | $(36) | | Net cash used in financing activities | $(113) | $(185) | | Net decrease in cash | $(110) | $(59) |