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Office Depot CEO: Decision On Retail Business Sale Coming Soon

'Operationally, we’ll keep our heads down and focused on continuing to drive strong execution while making progress on the strategic evaluation of our consumer business, working to bring that process to a close in the near term,’ says ODP CEO Jerry Smith.

Office Depot’s parent company, the ODP Corp., is close to a decision on what to do about its retail business, which is currently expected to be sold.

While rival Staples in January of 2021 said it wants to buy all or part of Office Depot, particularly the retail business, the actual decision of what ODP will do with the retail business will be made soon, ODP executives told financial analysts Wednesday during the company’s first fiscal quarter 2022 conference call.

David Bleisch, executive vice president and chief legal and administrative officer of Boca Raton, Fla.-based ODP, opened the conference call with an update on the company’s plan to split into two businesses, one focused on business-to-business and one focused on retail.

[Related: 5 Things To Know About Staples’ Bid To Acquire Rival Office Depot]

“On January 14, 2022, the company announced that its board of directors was delaying the previously announced plan to separate the company into two independent publicly traded companies so that it could carefully review the proposals with the assistance of its financial and legal advisers to determine the course of action that it believes is in the best interest of the company and its shareholders,” Bleisch said. “The company anticipates that its board of directors will complete its review of the alternatives in the near term.”

ODP CEO Gerry Smith, during his prepared remarks, said ODP delivered strong results despite numerous market-wide challenges while making significant progress on strategic initiatives to unlock shareholder value.

“We’re also excited about the progress we are making on our strategic initiatives, including maximizing the value of our consumer business, and we’re aiming to bring this process to a conclusion in the near term, and we'll provide more information at that time,” Smith said.

ODP in January said that its board of directors decided to delay the split of the company into two separate public companies after the company received interest in its consumer business.

The move came just days after ODP said it would sell its CompuCom systems integration business to an affiliate of Variant Equity Advisors.

The sale of CompuCom and the move to divide the remainder of ODP had been expected ever since Office Depot, a leading provider of business services and supplies and technology, early last year unveiled a bid by rival Staples to acquire all or part of ODP.

USR Parent, the corporate name of Staples, in January of 2021 offered to acquire Office Depot in a $2.1 billion deal. As part of that deal, Staples proposed the eventual divestiture of Office Depot’s business-to-business-focused holdings, including IT managed service provider CompuCom.

USR Parent in November, 2021 said its non-binding $1-billion cash offer to purchase ODP’s consumer business, including its Office Depot and OfficeMax retail stores business, the Company's direct channel business, and the Office Depot and OfficeMax intellectual property, including all brand names, remained in play.

However, ODP in December, 2021 received a non-binding proposal from a different third party to acquire its consumer business. The terms of that proposal were not released. Because of that, the ODP board of directors has decided to delay further work on the separation of the company to avoid potentially unnecessary costs.

Office Depot in May, 2021 unveiled plans to separate into two independent, publicly-traded companies by means of a tax-free spin-off to ODP shareholders. The first consists of its company’s retail consumer and small business services that are sold through ecommerce and about 1,100 retail Office Depot and OfficeMax location.

The second is based on Office Depot's B2B business, which includes the ODP Business Solutions Division, Canada-based Grand & Toy, and ODP’s regional office supply distribution business, along with ODP’s new B2B digital platform technology business, but not including CompuCom.

During his prepared remarks, Smith said ODP made significant progress during the quarter on its strategic initiatives focused on unlocking shareholder value.

“Using the flexibility forward by our holding company restructuring that we implemented in 2020, we have completed the separation of most of the operational components of the business and are aligning our assets to support our routes to market across our B2B and B2C businesses,” he said.

Preparing ODP for exiting the consumer business is a big focus for the company, Smith said.

“Operationally, we'll keep our heads down and focused on continuing to drive strong execution while making progress on the strategic evaluation of our consumer business, working to bring that process to a close in the near term,” he said.

In the meantime, ODP is continuing to invest in building up its business-to-business organization, Smith said.

This includes investing ODP’s B2B digital platform and its supply chain and sourcing assets, he said.

ODP has made much progress in advancing its digital platform business, Varis, and in setting the foundation for Veyer, its logistics and supply chain business.

“At Varis, in Q1, we initiated a private preview launch on the Microsoft platform and continue to expand our key supplier network,” he said. “Most recently, we were the keynote speaker at a major Microsoft Business Central Integrators Conference where Varis was prominently featured as the key procurement technology on Microsoft Dynamics 365 platform.”

With Veyer, ODP is enhancing its supply chain capabilities and aligning its assets to support its B2C and B2B businesses for now, and will do so for other third-party customers in the future, Smith said.

“This year will mark an important milestone for Veyer, as the business is formally established, and we continue to expand our data-driven platform to support our current and future routes to market,” he said.

For its first fiscal quarter 2022, which ended March 26, ODP reported revenue of $2.2 billion, which was flat compared to its first fiscal quarter 2020. That included sales of $1.2 billion for its Business Solutions Division, up 9 percent over last year, which was offset by a 9-percent drop in sales of its Retail Division to $943 million.

Total revenue beat analyst expectations by $70 million, according to Seeking Alpha.

ODP reported that sales via the Business Solutions Division’s enterprise contract channel increased over last year, while its eCommerce channel sales fell over last year due to a drop in sales of pandemic-related products.

In the Retail Division, sales fell primarily due to the closure of 114 retail stores over the past year, offset by increased sales per shopper.

For the quarter, the company reported GAAP net income of $55 million, or $1.09 per share, up from last year’ net income of $53 million, or 95 cents per share. On a non-GAAP basis, ODP reported EBITDA of $125 million, down from last year’s $133 million. It also reported non-GAAP earnings of $1.27 per share, up from last year’s $1.22 per share.

Non-GAAP earnings per share beat analyst expectations by 48 cents, according to Seeking Alpha.

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