Q4 2021 ODP Corp Earnings Call
Good morning, and welcome to the ODP Corporation fourth quarter and full year 2021 earnings conference call all lines will be on a listen only mode for today's call after which instructions will be given in order to ask a question at the request of the ODP Corporation. Today's call is being recorded I would like to introduce.
Tim Perrott, Vice President Investor Relations. Mr. Perrott, you may now begin.
Good morning, and thank you for joining us for the ODP Corporation fourth quarter 2021 earnings Conference call.
This is Tim Perrott, and I'm here with Gerry Smith, our CEO and Anthony Scaglione Executive Vice President and CFO .
Also joining us today is David <unk>, our executive Vice President and Chief legal and administrative officer.
We will begin today's call with David <unk>, who will provide commentary regarding our decision to Paul separation activities as we evaluate a potential sale of the consumer business.
After David's commentary Gerry will provide an update on the business focusing much of his commentary on our accomplishments in the year, including our operational performance and the progress we're making on all of our initiatives to drive shareholder value.
After Jerry's comments, Anthony will then review the company's financial results, including highlights of our divisional performance.
And following Anthonys comments, we will open up the line for your questions.
Before we begin I need to inform you that certain comments made on this call include forward looking statements, which are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
These forward looking statements reflect the company's current expectations concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially.
A detailed discussion of these risks and uncertainties are contained in the company's filings with the U S Security and Exchange Commission.
Also during the call we will use some non-GAAP financial measures as we describe business performance.
The SEC filings as well as the earnings press release press.
Presentation slides that accompany today's comments and reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are all available on our website at Investor Dot The ODP Corp Dot com.
Today's call and slide presentation is being simulcast on our website and will be archived there for at least one year.
I will now turn the call over to David Blish, Our executive Vice President and Chief legal and administrative officer David.
Thank you Tim and good morning, as a reminder, on June four 2021 U S. Smart parents Stoner Staples Sycamore partners subsidiary made a public proposal to acquire the ODP Corporation as consumer business, including the office depot and Officemax retail stores business. The company's direct channel business Office depot Dot com.
And the office depot, Officemax intellectual property, including all brand names for $1 billion.
In December 2021, the company's board of Directors received a nonbinding proposal from another third party to acquire the company's consumer business, the terms, which are confidential.
On January 14, 2022, the company announced that its board of directors was delayed in 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 advisors to determine the course of action that it believes is in the best interest of the company and its shareholders.
The company remains in conversations with interested parties as it further evaluate the potential value of the proposed transactions.
I'll now turn the call over to our Chief Executive Officer, Jerry Smith.
Thank you David and good morning to everyone joining our call today.
We appreciate you joining us this morning, and hope that all of our listeners and their families continue to remain safe and healthy.
I'm excited to be here with you today to discuss our results and accomplishments for 2021 as well as our strong finish in the fourth quarter.
Our performance reflects our team's continued commitment to our low cost model.
And as a core tenants that drive our business.
Positioning us to deliver strong results, while making significant progress on our strategic initiatives to further unlock shareholder value.
I've never been more excited about the opportunities ahead for our business and I'm extremely proud of our team's efforts in delivering these results.
Much more demanding macroeconomic and market backdrop.
And a follow on to David's comments are also excited to be working with interested parties on the potential sale of the consumer business and hope to have an update in the next few months on where we stand in the negotiations.
Now turning to slide five of the presentation the challenges posed by the pandemic and the macroeconomic environment over the past year were significant.
A resurgence of Covid delayed the back to the office plans for many of our customers and impacts the timing of school reopening.
Furthermore, supply chain sourcing constraints.
Labor shortages and inflationary pressures created additional challenges for us as well as for most companies in many industries.
I am proud that our team once again rose to meet these challenges.
The very strong performance, while also advancing our strategic initiatives.
Shareholder value a key outcome of which is helping us to align our assets to support the go to market strategies across our business units.
We remain true to the core tenants that drive our business addressing the market dynamics.
<unk>, new avenues for growth and positioning our business unlock future value for all of our stakeholders.
As I've mentioned on previous calls.
These tenants form the foundation of our strategy and are rooted in driving a low cost model.
<unk>, our value proposition and moving into higher value businesses through the addition of new growth engines.
As reflected in our results.
We've been executing along these priorities utilizing the strength of our business model and the flexibility of our infrastructure to address the market demands.
We continue to drive our low cost model, enabling us to provide compelling value for our customers and helping us generate strong operating results.
We're also continuing to evolve our platform to serve customers in new ways, whether at home on the road or in the office, expanding our value proposition and providing a broader set of products and services.
Also investing in evolving into higher value business markets.
The launch of our digital platform business, various and leveraging our supply chain and distribution capabilities to support our future businesses.
And it's not just what we accomplished is also how we drove our performance as shown on slide six.
At the heart of our approaches are winning five C culture.
I am very proud of the culture, we have created ODP.
I think a true testament to our <unk> culture is a strong team we have built over the past few years, attracting the best and brightest talent across a broad range of industries.
<unk> technology business Commerce supply chain and finance.
I can't express enough gratitude to our team and living up to our <unk> culture, serving customers and supporting our communities.
We continue to set the highest standards for corporate responsibility investing in giving back to our communities throughout the year.
We launched elevate together a signature initiatives to reduce historic barriers and bringing racial equity to small business owners and entrepreneurs.
This effort raised nearly $3 million and through our partnership with the National Emily and U S. Hispanic Chamber of Commerce provide a direct cash grants to minority entrepreneurs, we expanded our award winning depot difference program.
Solidifying a national partnership with the boys and girls clubs of America.
To kick off the relationship the club's served as a partner for our annual depot days of service as we supported the revitalization of several community centers in the southeast.
We continued our strong support of teachers and students with our start proud program.
<unk> low income elementary schools across the nation, providing fully filled backpacks with supplies gift cards and awards for teachers.
We remain a strong steward of the environment, continuing with initiatives to reduce greenhouse gas emissions.
So proud to be the leader of a company with such a strong commitment to our communities the environment and a culture that truly makes a difference.
To elevate us all.
Now turning to the highlights of our major accomplishments for 2021 as shown on slide seven.
First as Ive stated on previous calls maintaining.
We maintain a safe environment for our associates and our customers continue to be our top priority.
We continue to monitor state and national health guidelines or maintaining safety measures as necessary to help protect our associates and customers.
Now for the highlights.
We delivered strong operating performance in a year. Despite the challenges related to a slower pace back to office trends as well as industry wide challenges related to supply chain constraints and inflationary pressures.
The powerful combination of our low cost model approach, along with our flexible supply chain and pricing strategies helped to drive strong operating results against the more challenging backdrop for both the year and the quarter.
Next we made significant progress throughout the year on all of our strategic initiatives focused on unlocking shareholder value in the future.
Using the flexibility afforded by our holding company restructuring.
And the separation for many of the operational components of our business and improve the alignment of the assets that support our routes to market across our BBB and <unk> businesses.
We also enhanced our focus on our core capabilities, including the sale of coffee come as we continue to invest in our <unk> digital platform and supply chain.
Supporting one of our key tenants are driving new avenues of growth in higher value markets. We continue to make progress in advancing our digital platform business Ferris.
Over the past 12 months, we built a team of World class BTB industry veteran led by Prentice Wilson and established a leading magic quadrant enterprise procure to pay platform with the acquisition of buyer Quest.
During the year, we established a collaboration with Microsoft I'll bring various digital procurement platform to Microsoft dynamics 365 business central customers. This year.
To add customers suppliers and partners to the platform.
The progress we are making places us in an excellent position to drive value in the large and growing digital business commerce market in the future.
Finally, as part of our effort to enhance returns for shareholders. We committed to return over $300 million in the form of share buybacks in 2021.
Putting our efforts in this area into more perspective over the past five years during my tenure as CEO and the support of our board, we returned approximately $650 million to shareholders largely through share buybacks.
Now turning to more specifics of our performance for the year as shown on slide eight.
Our overall performance in 2021 reflects the positive attributes of our team's commitment to operational excellence.
And the value of the investments we made our infrastructure.
As we addressed an increasingly challenging market backdrop throughout the year.
This backdrop includes a spread of two COVID-19 variance delay in the return to office plans for many of our enterprise customers.
As well as the global supply chain constraints and inflation have created the recent industry wide sourcing and cost challenges.
As I discussed in our last call.
But because of the investments we have previously made in our supply chain infrastructure.
Long standing relationships ODP has been able to navigate a bit better than most companies through these challenges.
A key differentiator as we continue to leverage our large presence in Asia through our global sourcing office as well as the investments we have made in our private fleet.
Flexibility of our distribution network that includes our long term relationships with our distribution partners and suppliers.
We also utilized pricing flexibility to help mitigate some of the inflationary increases, allowing us to pass through of certain price increases to help alleviate cost pressures.
Our topline did see pressure primarily from a planned reduction in our store footprint.
Demand for certain pandemic related products, particularly in PPE. Our teams continued focus on driving a low cost model, while leveraging the flexibility of our supply chain assets allowed us to deliver solid operating results.
In all our compelling customer value proposition.
Our team's strong execution offset many of the challenges and helped us drive over $300 million.
And adjusted operating income in the year and strong EBITDA.
Now turning to our divisional performance, starting with our business solution division or BSD as highlighted on slide nine.
Our BSD segment consist of both contract our e-commerce channels.
<unk> strong value proposition for our customers with a broad product and service assortment backed by a flexible sourcing and trusted supply chain operations.
This segment of our business serves nearly half of the fortune 500 companies as well as medium and smaller enterprises and consumers through our digital presence.
<unk> revenue performance was highlighted by an increase in sales in our contract channel driven.
Driven by slightly stronger demand in core categories from private and public enterprises.
Offset by lower sales through our E Commerce channel as compared to the very strong demand we experienced in this channel in 2020 during the pandemic.
Overall revenue was down about 2% for the year.
Let me provide more details.
The overall business climate continued to face challenges throughout the year related to the ongoing effects of the pandemic and the recent impacts related to the global sourcing and supply chain environment.
As the business environment began to stabilize throughout the year.
Enterprise customers begin to return to the office a positive trend.
However, at a pace much slower than we anticipated due to the continuing effects of COVID-19 .
Despite the challenge we drove increases in sales in our contract channel led by solid demand from enterprise customers.
Core supply products, including paper and supplies.
Stronger demand for furniture technology and print services.
This was offset by lower sales through our ecommerce channel as the pandemic effects receded, largely driven by lower sales of cleaning and break room and PPE.
We continue to maintain a strong presence across our adjacency categories.
<unk> cleaning and break room furniture tech and copy and print.
Revenues generated in these categories remained flat with last year as a percentage of total BSD sales.
From an operating perspective, we maintained our focus on our low cost model approach.
Flexing, our assets and utilizing pricing strategy throughout the year to partially offset the increased cost we are experiencing related supply chain operations and other inflationary impacts.
For the year in the quarter, we continued to do an excellent job in both retention and winning new business.
Our retention rate remains near its all time highest level above 95% and we're earning new business.
We are continuing to work with our customers to better understand their needs and the new normal environment.
<unk>, our ecosystem to support them in any environment.
Additionally, we remain encouraged by the indication of the positive impacts for our business as customers return to the office in general our data shows that we do experience a lift in sales primarily in core supply categories as more employees return to the office.
This high correlation with return the office will drive higher consumption for our breadth of products.
And while the return to office has been slower to materialize throughout the year. We are confident that we are well positioned to capture the demand as activity increases.
Now turning to our performance of our retail division as shown on slide 10.
The performance of our retail division in 2021 was simply terrific.
Despite the challenges our team drove strong top and bottom line results as we executed upon our low cost model approach and delivered a value proposition that continue to resonate with our customers.
Im extremely proud of our retail team for driving these impressive results and provide a positive shopping experience for our customers.
Leading to continued strong net promoter scores.
Throughout the year, we continue to execute upon our plans to optimize our store footprint, helping to improve profitability and lower lease liabilities and our omnichannel presence remains a popular choice among our customers.
Our 2021 revenue performance was lower versus last year, driven by 116 fewer stores and service as a result of the planned store closures are.
Although we are not reporting the specifics.
Eliminating the impact of store closures, we estimate that sales for open stores were up in the low single digit percentage over last year as traffic trends were stable and sales per shopper and conversion rates increased.
Other dynamics throughout the year included a stronger back to school season.
As more students and teachers came back to the classroom as.
As well as strong demand in categories related to home and remote office and small businesses.
Core supplies, Workspaces and copy and print services all exhibited strong demand.
These positive helped to offset some of the impacts of lower sales in product categories that were previously in very high demand last year.
For example, our cleaning and break room category, including PPE exhibited lower sales compared to the very strong demand we experienced last year during the height of the pandemic.
Additionally, we did face increasing challenges throughout the year related to supply chain and sourcing availability for a number of skus we sell.
The number of out of stocks in the second half of the year around specifically higher than pre pandemic levels, most notably for technology products in Pcs driven by the continued chip shortages as well as overall challenges for components, including certain ink and toner.
We're continuing to work with our vendors and partners to efficiently source these products.
Our inventory levels, but we expect these challenges to persist in the near term.
Operationally our teams continued focus on our low cost model helped to offset some of these challenges.
Through strong cost controls the benefits of our maximize BTB plan and the new labor model, we implemented last year. Our team drove an increase in operating margins this year versus last year's results as well as quarter over quarter.
Overall, we are encouraged by our continued strong performance.
Our store footprint continues to become more profitable and our Omnichannel presence continues to be a popular choice among our customers.
Demand for our <unk> offering while slightly lower on a comparable basis relative to last year is up over 60% from pre pandemic levels.
Our recently launched 20 minute guarantee for in store and curbside pickup remain popular and saw strong demand.
The only company in retail that we know up to offer such a guarantee which has been well received by our customers.
This innovative service along with the growth of independent delivery channels.
Will drive sales and continued to generate good customer satisfaction scores in the quarters to come.
Now as shown on slide 11, I'd like to take a moment to discuss the progress we made on our strategic initiatives our path to unlock additional shareholder value in the future.
As I look back on our journey, we recognized early on the powerful combination of the asset supporting our business and the market presence we created ODP.
Over the years, we have invested in and create a large unique supply chain and distribution network.
<unk> flexible channels to market.
A strong digital presence and we expanded our influence among businesses of all sizes in the <unk> market.
As we continue to analyze our position and the assets to support our business we've taken delivery.
Delivery actions over the past few years to create the flexibility to align these assets to support our business for the future and unlock value for shareholders.
It was less than two years ago. When we were still organized into a single operating company office depot that we took a major step as you may recall in early 2020.
Reorganize into a holding company structure in order to provide more flexibility to our business model and to better align our assets with our operating channels.
Since that time, we also executed upon our maximized <unk> plan.
Aimed at optimizing our retail footprint and generate additional resources to invest in our future growth.
And in 2021, our evolution continued early in the year, we embarked on a plan to separate our business and we shifted our transformation of a digital business platform into high gear.
Through the process of strategically analyzing assets, our business controls and how to leverage these capabilities.
We've now positioned these assets to support our go to market strategies aligned with our B to C <unk> digital platform and distribution businesses.
We have developed a clear line of sight of each of these businesses and the strategy behind driving future profitable growth.
And through this process, we have separately many of the operational components of our business nessus.
Necessary for split our sale of our consumer business and we enhanced our focus on our core capabilities, including through the sale of coffee com.
Along the way, we're continuing to hone our low cost model approach.
So today, we have mostly completed our realignment, which has resulted in highly focused on.
Operating businesses under a holding company structure.
Highlighting these I will turn first to ODP business solutions.
A leading BTB solutions provider, serving small medium and enterprise level companies, including the contract sales channel Odp's Prior office depot business Solutions Division.
Next step is office depot, a leading provider of retail consumer and small business products and services just trying to be over 1000 office depot Officemax retail locations is an award winning e-commerce presence through office depot Dot com.
Next is various.
Which as many of you know is our BTB digital platform technology business focused on transforming digital commerce between buying organizations and suppliers.
Our federation entities, including more than a dozen regional office supply distribution businesses we've.
We've acquired as part of our transformation to expand our reach and distribution network and to geographic areas that were previously underserved.
These businesses are wholly owned by ODP and managed through ODP business solutions, but continue to operate under their own brand names.
And finally, <unk>, which may be a new name you are not familiar with yet, but you will be there.
There has been created through our activities related to our separation and is our world class supply chain distribution procurement and global sourcing operations supporting both our b to B and <unk> businesses as well as logistics needs for other third parties.
Our progress over the past year has been terrific and moving forward. We are focused on leveraging these assets to drive future growth and profitability.
We're committed to unlocking the value of our consumer business and driving growth in our BTB distribution and digital platform businesses and leveraging our supply chain assets to support our current and future business.
We remained focused on regaining momentum in our enterprise channel as more companies routinely office and as we work to mitigate the ongoing supply chain and inflation challenges.
I'd like to provide more insight into various for the year ahead as shown on slide 12.
First as a technology company that is focused on reducing the complexity and friction and business to business procurement and distribution.
Anyone in the business procurement, our BTB distribution space will tell you that buyers and suppliers have been dealing with legacy systems and processes for decades, and those systems create friction and drive up cost for both.
Building various within ODP provides great synergy in acceleration as we have developed a deep understanding of the supplier side pain points.
Through our network and business development efforts, we are great partners to work with and we see tremendous opportunity to leverage technology to help businesses grow and operate more efficiently.
And let's face it expectations from a digital workforce continually increase around how they engage suppliers and how they expect to get the goods and services they need.
Recently, all around the globe, we've seen the economic pressure from things like supply chain issues and workforce turnover and while we've all benefited from new innovative solutions as consumers. There's a huge gap when it comes to the solutions tailored to the unique needs of businesses and that is a gap that <unk> is working to address that.
The reality is that neither procurement organizations, nor suppliers are in a position to invest in technology and user experiences that are holistic for their employees or customers.
Through <unk>, our digital platform is purpose built for them. So they can focus on growing their strategic partnerships and their business.
Our focus is enabling both buyers and suppliers to win through a seamless end to end solution.
Since we announced various last year, we've been partnering with customers on both the buyer side and supplier side to drive innovative technology that removes unnecessary friction and costs, while driving savings for both.
We've made tremendous progress in 2021, enabling attracting a world class team building out the capabilities and technology forging important partnerships and scaling our plans were.
We are receiving great feedback from customers, who are using the procure to pay platform by request and we are incorporating new ideas on how to best serve them on the overall end to end platform.
When they see the immediate benefits of putting their employees into a single purchase and experience with existing vendors along with the workforce efficiencies and end user satisfaction gains they ask us to add additional suppliers, creating a natural flywheel for growth.
Bulk buying organizations and suppliers consistently see contract utilization increase and when they put our solution in place the cost operate decreases and compliance rates increase quickly.
Building out the full suite will ultimately provide a high quality end to end digital BTB solution, helping buyers and suppliers managing grow their business. We expect 2022 to be a transformative year for <unk> as we continue to invest in its capabilities grow customer and supplier relationships build volume in <unk>.
Spanned the platform with key partners.
All positioning us to drive future value of the large and growing business commerce market.
We're also working to expand our supply chain capabilities that we view as an integral component of our platform.
As we finalize some of the strategic initiatives related to our <unk> process.
I outlined earlier, we're planning to provide more information about our entire BTB business platform, including ODP business solutions <unk> and <unk>.
With that I will turn the call over to Anthony for a review of our financial results.
Thank you Jerry and good morning, everyone I'm happy to be here today to discuss our financial results for the fourth quarter and full year 2021, and the progress we are making on our strategic initiatives.
As I begin I'd like to say, how proud I am of our entire team for remaining focused against what was an increasingly difficult macroeconomic and industry backdrop. This year.
Our team lived up to our <unk> culture and delivered on all the key priorities I outlined when I joined as CFO .
Before I cover the results for the quarter I thought I would take a few moments to discuss in more detail some of the cost and inflationary impacts we faced primarily relating to Cogs supply chain and labor.
As well as the strategies, we've been employing to address these headwinds.
Much of the recent well publicized global supply chain challenges began with the onset of the pandemic.
As labor resources were constrained.
Three hours were limited and a demand shift from services to products added additional stress to the system.
These factors continue to put strain on global supply chain assets.
Raw materials used in everyday manufacturing have become scarce and more expensive to ship, causing suppliers to increase cost to their customers, creating a downstream inflationary effect.
Spot market transportation costs have also skyrocketed and labor scarcity and costs have continued to rise.
All of these factors have made it more challenging for all industries to source import distribute and deliver goods and to do so at a reasonable cost.
Our operations were not immune to these challenges that said because of the investments. We have previously made in our supply chain infrastructure and our long standing relationships ODP is in a better position than most companies to navigate through these challenges, let me begin with product inflation.
With inflation, reaching a 40 year high and energy prices climbing sharply the overall cost of product from our suppliers has also been on the rise throughout the year impacting the cost of many of our skus, including paper furniture Tech and other essential office categories.
In total for the fourth quarter, we have seen a mid single digit percent rise on average and our overall cost of goods sold via our product baskets.
Next supply chain costs related to transportation distribution and labor were also up in the quarter and throughout the year.
Market demand overall is up fuel prices are higher and capacity is constrained.
Accordingly, our supply chain cost to serve was up nearly 100 basis points in the quarter compared to last year due to higher transportation and third party logistics rates and labor.
And breaking out labor costs wages for logistics workers and general wage labor across our retail operations combined were up about 7% across the business.
And has been the case for some time, we've experienced sourcing challenges in our technology product categories, including Pcs printers, and ink, causing our overall out of stocks to be higher than normal.
These costs and sourcing challenges have had an increasing impact throughout the year that said we are in a strong position to mitigate many of these impacts and as I stated on our last call. We have been taking actions early and aggressively to address this.
These actions include leveraging our private fleet and third party relationships to help mitigate some of the cost increases in transportation and ensure reliable services to customers.
This extends from ocean carrier contract arrangements to domestic small parcel carrier relationships as well as long haul providers.
For product invoice increases in both our retail and BSD channels, we've been managing price actions and passing through cost increases to customers where possible.
All remaining competitive with the market.
Additionally, our vast assortment of skus and our ability to pivot to an assortment breadth to help meet our customers' needs at varying price points is a competitive advantage, helping us manage the price elasticity of demand.
In terms of labor costs, we're working to address wage inflation, while dampening the long term effects in our BSD and supply chain areas, we're using more short term incentives rather than long term wage locks.
For our retail segment our.
Our labor model and efficiencies. We have gained has helped mitigate some of the increased costs for our operations.
Our ability to execute upon all of these actions is a testament to the investments we have made over the years and a core strength and our operational excellence. However.
However, I would point out that the environment continues to remain challenging and while we see some signs that certain constraints are abating. We expect that these conditions will persist in the near term.
That said we are in a strong position to continue to mitigate some of these challenges and manage accordingly.
Now turning to the highlights of our financial results for our continuing operations as shown on slide 14 consistent.
Consistent with previous quarters, we have provided our results on both a GAAP and adjusted basis.
Turning to the specifics of our quarterly results, we generated total revenue of $2 billion in the fourth quarter down 2% versus Q4 of last year.
This was driven primarily by 116 fewer stores in service compared to last year.
Coupled with lower comparable sales for products previously and higher demand during the early stages of the pandemic.
We continue to drive our strong value proposition, helping drive sales and increases in core supply categories, Workspaces and copy and print services.
This was offset primarily by lower demand for PPE and cleaning products as conditions related to pandemic began to subside.
<unk> technology and in categories continued to be negatively impacted by the sourcing challenges I described earlier.
Despite the lower recovery of customers returning to the office in the quarter, we drove an increase in sales in our enterprise contract channel on a sequential and year over year basis, and our retail channel continued to see strong demand from hybrid workers and small business customers.
GAAP operating income in the quarter was $31 million up from $20 million last year included in operating income was $16 million of charges, including $2 million of noncash asset impairment charges, primarily related with the right of use assets associated with our store locations.
The remaining $14 million and net merger restructuring and other costs was primarily associated with our separation efforts and we expect our overall cost to remain in line with previous expectations as we pursue a sale.
Excluding these and other items, our adjusted operating income for Q4 was $47 million up from $40 million last year.
Unallocated corporate expenses were $25 million adjusted.
Adjusted EBITDA of $87 million for the quarter was up compared to $78 million in last year's fourth quarter. This includes adjusted depreciation and amortization expense of $35 million and $37 million in the fourth quarters of 2021 and 2020, respectively.
Excluding the after tax impact from the items mentioned earlier adjusted net income for the fourth quarter was $37 million or <unk> 71 per diluted share compared to adjusted net income of $23 million or <unk> 43 per diluted share in the prior year period.
Turning to cash flow, we generated operating cash flow of $88 million, which included $7 million of restructuring costs.
This compared to operating cash flow of $15 million last year.
The increase year over year was largely due to the timing of working capital.
Capital expenditures in the quarter were $26 million compared to $9 million in the year ago period reflected targeted growth investments in our digital transformation distribution network and e-commerce capabilities offset by lower Capex in our retail division and.
In future quarters, we expect to increase our capital investments allocated to our digital platform initiatives as we continue to make progress on there.
Adjusting for cash charges of approximately $7 million associated with the company's restructuring plans adjusted free cash flow in the quarter was $80 million.
Turning to slide 15, I have highlighted some key performance measures for the full year 2021, we.
We delivered impressive results throughout the year against a much more demanding macroeconomic backdrop, leveraging our low cost model and driving strong operating and free cash flow results.
Total company sales for the year totaled $8 5 billion, a 5% decrease compared to the prior year. The decrease is primarily due to fewer retail stores and service relative to last year related to our maximized <unk> planned.
In our BSD Division, we drove better traction in our contract channel, which was offset by lower demand relative to last year for certain product categories and our E Commerce channel.
Overall, we drove an increase in core supplies at some of our beta customers slowly began to return to the office as well as increases in our retail channel for products supporting hybrid and remote workers and good growth in our copy and print services.
As reflected on our full year GAAP basis, we recorded operating income of $234 million compared to operating income of $6 million last year.
Primary drivers of the year over year increase in operating income our improved operating results a $162 million decrease in noncash asset impairment charges and a $51 million decrease in net merger restructuring and other operating costs.
For the full year adjusted operating income was $305 million up from $290 million last year, and our adjusted EBITDA of $465 million was up about 4% relative to last year impressive results given the challenging business conditions.
Excluding the after tax impact from the items mentioned earlier 2021, adjusted net income from continuing operations was $234 million or $4 28 per share compared to $184 million or $3 40 per share in the prior year.
Finally for the year, we drove solid cash flow results with cash provided by operating activities of $344 million, which included $57 million in cash costs associated with our restructuring programs and activities related to strategic initiatives.
The decrease in operating cash flows relative to last year are primarily related to working capital and increase in our contract channel business, which has longer DSO cycles compared to our BDC channel.
We generated adjusted free cash flow of $328 million in 2021 with Capex of $73 million, primarily directed toward our continued investment in our <unk> platform.
Now I'd like to cover our business unit performance, starting with our BSD Division on slide 16.
As a reminder, BSD consist of our contract channel, serving large medium and small enterprises as well as our E Commerce channel, both backed by a flexible and reliable supply chain and distribution network.
As you heard from Jerry while the return to work trends are beginning to materialize. The pace has been much slower than we anticipated in the quarter due to the spread of the Covid Omicron variant.
That said total revenue in our BSD Division was $1 2 billion in.
In Q4 up 2% in the quarter relative to the same period last year driven by an increase in sales in our contract channel as businesses slowly return to the office.
This was partially offset by lower sales velocity in our ecommerce channel, which we expected relative to the strong demand experienced last year during the height of the pandemic.
Overall, we saw an increase in demand for core supplies and stronger sales of furniture and managed print services specifically in our contract channel demand for core supply categories were up in the high single digits, highlighting the correlation between return to office activity and core supplies growing in our mix.
Offsetting some of these positives were lower sales of technology related products, including Pcs and ink, both of which were impacted by the sourcing supply challenges I mentioned earlier.
Additionally, sales of PPE technology, and furniture, all products and very strong demand at the height of the pandemic were lower in our digital channel.
That said, our ecommerce channel continues to be a key component of our omnichannel presence, providing our customers with the convenience and ease of shopping online and fuels, our strong and growing both this offering with those sales reflected in our retail business overall adjacency categories were 44% of total BSD sales essentially flat with last.
Year.
<unk> operating performance was up over last year, despite the challenges related to an increase in supply chain and distribution cost.
Operating income was $30 million in the quarter versus $18 million in the prior year period. This represented a 100 basis point increase as a percentage of sales.
A mix shift into core supplies lower SG&A and continued cost efficiencies helped to mitigate the increase in distribution costs. We continue to aggressively execute strategies to pursue profitable growth in this channel and we look forward to sharing more as we progress throughout the year.
Now turning to our retail division results as shown on slide 17.
Our retail division again drove terrific results in the fourth quarter with strong comparable store sales and strong margins.
While reported revenue in the quarter was down 7% to $885 million.
This was primarily driven by a 116 fewer retail stores in service this year versus last year.
We ended the quarter with 1038 stores in service when eliminate the impact of store closures. We estimate sales for open stores were up slightly in the quarter versus last year as our value proposition continued to resonate with customers and we continue to be seen as the home office and small business destination for customers.
On a full year basis, we generated revenues of $3 8 billion down 8% on the year. However from a comparable open store basis, we anticipate we were up about 2% in sales from open stores throughout the year.
Same store sales traffic was lower in the quarter. However, this was significantly offset with higher conversion rates and average order volumes, leading to an increase in sales per shopper.
We saw strong resurgence in demand for our copy and print services up over 10% and continued healthy demand in our core supply categories.
Additionally, our omnichannel presence continued to be recognized by the market, while our <unk> sales were down versus the previous period last year. During the height of the pandemic. Both this sales are up over 60% from pre pandemic levels highlighting the continued strong value proposition, we are providing to our customers.
Supporting the success is our recently launched 20 minute pickup guarantee which continues to drive strong customer demand and satisfaction.
Also for the year Omni sales reached a new high with both this comps up over 4%. We also hit a milestone with over 1 million curbside pickup orders.
Balancing this progress we saw lower demand in categories relating to the pandemic compared to the very strong performance last year.
These included PPE and cleaning products furniture, and certain technology I would add that out of stocks also added to lower sales of technology products like Pcs as well as ink during the quarter.
From an operating perspective, we delivered strong operating margin performance in the quarter. Despite the higher cost challenges, we generated operating income of $54 million in the quarter up 7% from the same period last year, representing an 80 basis point improvement improvements in SG&A in lease costs and continued cost efficiencies drove this result.
<unk>.
Now briefly turning to our balance sheet highlights as shown on slide 18, we ended the quarter with total liquidity of approximately $1 4 billion.
Consisting of $514 million in cash and cash equivalents and $877 million in availability under our asset based lending facility.
Total debt at the end of the quarter was approximately $248 million.
I also would point out that subsequent to the quarter end, we sold comp become on December 31, which had the effect of increasing cash and reducing the borrowing base on the ABL facility.
I would highlight some of the drivers and actions we took during the quarter as part of our overall capital structure and to support our efforts to enhance shareholder returns.
We repaid $100 million of near term maturity industrial revenue bonds in the period.
This early retirement will save us about $10 million and interest costs over the remaining life of those bonds.
We're also looking at additional bonds as part of our overall capital structure and expect to address them in the coming quarters. After we make additional progress with the <unk> sale.
Next we continue to execute on our existing share buyback authorization and put in place a $150 million accelerated share repurchase plan in the quarter and Q4 before we put in place. The ASR, we repurchased about 850000 shares for approximately $36 million under the ASR, we delivered 150.
<unk> million dollars and received approximately $2 8 million shares in the quarter, representing about 75% of the programs estimated shares from the initial transaction.
As the program moves forward, we expect the balance of the shares to be delivered and accounted for upon the settlement of the program, which runs through June of 2022, but could terminate as early as mid March.
In total for the quarter, we committed to about $185 million for share repurchase activity and retired approximately $3 7 million shares with additional shares to be delivered under the settlement of the ASR.
In total for 2021, we have committed to return over $300 million in capital to investors from share buybacks, reflecting the confidence our board has in our <unk> business and digital <unk> platform strategy, and our capability to deliver shareholder value through disciplined capital allocation.
Our balance sheet continues to remain a source of strength and provides us flexibility as we pursue growth and execute our strategy.
In summary, we executed well across our strategic initiatives and drove strong results in 2021.
Our entire team remains committed to unlocking future value by driving our digital transformation continuing to execute our strategic initiatives and building upon our <unk> platform for the benefit of all of our stakeholders.
Before moving to Q&A I wanted to touch briefly on capital allocation and provide some commentary on the year ahead.
We expect 2022 to be a transformative year for ODP as we continue to execute upon the strategic path for our consumer business complete the buildout and gained momentum in various and enhance our supply chain capabilities supporting our <unk> and <unk> business through there.
Operationally, we will continue to work with our customers to gain greater momentum in our contract channel as more businesses return to the office and continue to leverage and optimize our store footprint for their benefit.
In terms of capital deployment will continue to take a balanced approach continuing our strategic investments in our platform to pursue higher growth opportunities, while working with our board on returning capital to shareholders.
As you heard earlier, our <unk> digital platform business <unk> continues to make significant progress and is building a strong base of suppliers and customers in.
In 2022, we expect an increase in this base launched a private preview with Microsoft dynamics business Central.
Increase the platform's growth volume and build the components of the revenue flywheel as we exit this year.
In support of these efforts in 2022, we expect to continue to make investments in various in the range of $30 million to $40 million in capital expenditures and expect to incur $40 million to $50 million in operating expenses.
It is also important to note that the capex investments that we're making in our digital transformation are consistent with our historical capex amounts allocated to our growth initiatives and fit within the framework of our traditional total company Capex investment.
This re prioritizing of our capital expenditures will help us build out our digital platform various and also help strengthen our core e-commerce and supply chain platform. So we look forward to providing more information on various in the upcoming quarters.
Regarding guidance, considering our previously disclosed strategic initiatives that are currently underway as well as the pace of macroeconomic activity related to the pandemic and continued supply chain dynamics, we are not providing specific guidance for 2022 at this time.
That said for 2022, we do anticipate annual revenue operating and cash flow results to be in a range consistent with the results of the prior year and we will hope to refine our views of specific guidance elements as we conclude the strategic considerations and as the year progresses.
With that operator, we will turn it over for questions.
To ask a question simply press star one on your telephone keypad again that at Starwood.
Our first question comes from the line of Chris Mcginnis. Please state. Your company name. Then proceed with your question yes.
Yes, good morning from Sidoti <unk> Company first thanks for taking my questions and Anthony can you just maybe.
And a little bit on capital allocation for 2002, and the expectations, maybe around Capex and maybe return to shareholders.
Thanks, Chris good to hear from you.
If you look at 2021, we've exhibited as I mentioned a good balance.
Drove organic investments to support our business, we executed on M&A to further align to our core strategy and clearly had a great return from a capital standpoint to shareholders as.
As well as cleaning up some near term debt. So as we look at 'twenty to 'twenty, two and beyond we will work with our board on an approach that continues to maximize shareholder value as we exhibited in 'twenty one.
Our next question will come from the line of Michael Lasser. Please state. Your company name did proceed with your question.
Hi, This is Mike Swartz on for Michael Lasser from UBS. Thanks for taking our question.
Can you size the topline impact from price inflation in the fourth quarter and what are you expecting the contribution from inflation to be in 2022.
Well, we're not we're not providing guidance at this time at 2022, but we're seeing pressure coming across.
Number of areas as we mentioned in our prepared remarks.
I think inventory had a 3% to 4% impact on top line, we saw pricing actions across our broad portfolio.
In the mid to high single digits across the portfolio, but you can't really look at it at <unk>, because obviously the shift in the portfolio mix will have an impact as it relates to pricing.
So as we think about future state we continue to look at inventory challenges in key categories that we've mentioned, we continue to look at pricing as a key lever for us working with our customers.
And as you can imagine pricing is elastic and some of our channels a little bit more challenging in our BSD channel just given the contractual nature, but we have very strong.
Processes in place to continue to drive pricing through our channels and continue to capture share through that process and I'll add that I'm proud of the team we've had pricing pressures through all of 2021 and I think our operating results would indicate our ability and the business management system to pass those costs through appropriately.
Again positioning our low cost model is the foundation around that.
Thanks, and just as a quick follow up how much was the sales drag from lower technology in PC sales in the fourth quarter and how does that compare to lower sales of PPE.
Great.
Yes, PPE was definitely a category that year over year had a significant impact if you think about that impact from the height of the pandemic.
Like many retailers I think we've disclosed that.
Had excess inventory coming into 2021, specifically in hand sanitizers.
<unk> been very aggressive at moving that inventory much of that at below cost. So as you look at the results and you look at the performance with that process again, Jeremy point really proud of the team to take other actions and take other pricing actions across the portfolio to address some of the challenges we saw specifically in the <unk>.
Category exiting 2020 with a lot of momentum in 2021, having probably around the $200 million overall.
I'd say overall overall impact on PPE year over year, and just the reduction in top line.
Again that is starwood for any questions. Your next question comes from the line of William <unk>. Please go ahead.
Okay.
Hi, guys. This is wilco for you from Colliers.
My question is on the commentary on 2022.
Operations being similar range too.
Range consistent with 2021.
Can you provide any color around the individuals' segment outlook for BSD and retail thats embedded in his commentary.
At least directionally I think it would be helpful. Given all the moving pieces.
Including the margin improvement that we've seen in retail over the past year.
And welcome to the call Im glad Youre, joining us and following US now I appreciate it I'll start at a high level, we're going to go through the same mechanics of addressing cost as well addressing the headwinds across 2022.
That.
The culture the team the low cost model, we have the focus on our.
2020 guarantee in retail the great low cost model that Kevin's leadership team as well as we're starting to see some positive trends for me.
The last two to three weeks post on the ground.
Contract perspective as well.
We're going to we're basically saying.
Sort of 'twenty two to 'twenty, one we're going to be relatively in the same range Anthony I'll, let you give some more color on that.
Yes, I think Jerry's point, if you put aside the strategic review of BDC, we continue to see significant strength in retailer.
The consumers continue to leverage.
Our omnichannel presence for their home office and small business needs. We said from last year BSD our contract business, specifically was a recovery story tied to reopening so.
So as we see the pace of reopening and this is primarily <unk>.
Large enterprises are reopening.
We expect continued.
Progress on the contract side, we're seeing good progress in higher Ed and K 12, as those begin to return to normality small and medium businesses continue to.
Have a pace consistent with pre pandemic, though as we continue to see the reopening pace, we're going to continue to see benefit and that's what gives us confidence in the prepared remarks.
Great. Thank you.
Thank you.
Our next question comes from the line of Chris Mcginnis.
Chris you may be on mute.
Alright. Thank.
Thank you for taking my question just a follow up our own office trends as they return back have you seen an increase in pace of that and I guess, just talking to customers the expectation of how that ramps in 'twenty two.
Well from a.
As omicron hit we saw flatness not a decline sort of from where it was we built back up to sort of we saw progress throughout the year. It was flat <unk> in the last two or three weeks, we're starting to see some positiveness nothing Chris.
Exceptional yet but.
Encouraged with the last two or three weeks from an overall demand perspective, and I think that again.
We've done a good job spanning adjacencies across that business and we'll continue to try to to look for new opportunities across that Anthony yes, I'll just add the whole strategy around return to office.
We're monitoring it we're working with our customers to Jerry's point, we are seeing some progress as customers begin to define that future state in a more meaningful way whether it's hybrid.
More fully returned to office those are all trends that should provide a tailwind for us as we continue to progress through 2022.
Great and then just a question just around bay or embarrass Houston, maybe talk about the relationship and what are the things we should look for in 'twenty two around barriers and when does that officially launch thanks.
So from our various perspective 21 was sort of the year of recruiting and building the team and starting the development of the platform 22 is really continuing the development of the platform, but launching we're having a pilot with Microsoft here in the very near future Super excited by that opportunity to be part of the dynamics 365, and they are there.
SMB customer base.
Obviously throughout the rest of the year, we're going to continue to add buyers and sellers throughout the program and continuing to work with some of those buyers and sellers.
Really building momentum Chris.
As we exit the year from a their perspective real important I'm glad that you called that out as.
Anthony highlighted.
There provides.
Supply chain services sourcing procurement services for both the BDC and the PDP businesses.
So I've always talked about the value of our supply chain, but we're formalizing that more unlocking that value more and I think it's an exciting business opportunity for us, especially in the future, especially potentially depending on.
After the analysis from our board and our financial advisors and legal advisors.
<unk> business and how we unlock the value there so really excited with the future positioning have embarrassed by the digital platform, having there for supply chain procurement sourcing services and having our <unk> contract business, which would obviously we feel that way.
We're in a good position as that recovers.
Great. Thanks for taking my questions and good luck in Q1.
Thank you so much thanks Brett.
That concludes the Q&A session for today I'll turn the call back over to office Depot's CEO Gerry Smith for any closing remarks.
Everyone for joining the call please stay safe and healthy and look forward to talking to you again.
Our Q1 results.
Good day.
Thank you for your participation. This concludes today's call you may now disconnect.
Okay.
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