Q1 2025 The ODP Corp Earnings Call
Good morning and welcome to the ODP Corporation's first quarter, 2025 Earnings Conference Call.
All lines will be on a listenly mode for today's call.
Speaker Change: after which instructions will be given to ask the question. At the request of the ODP Corporation, today's call has been recorded. I would now like to introduce Tim Perrott, Vice President Investor Relations and Treasurer. Mr. Perrott, you may now begin.
Speaker Change: Good morning, and thank you for joining us for the ODP Corporation's first quarter 2025
Speaker Change: This is Tim Perrott, and I'm here with Gerry Smith, our CEO . Also joining us on McCall today are Max Hood and Adam Haggard, our co-CFOs.
Speaker Change: During today's call, Gerry will provide an update on the business, focusing much of his commentary on our results and accomplishments for the first quarter of 2025, including the progress we're making on our B2B pivot and our expansion into higher growth industry segments.
Speaker Change: After Gerry's commentary, Max will then review the company's results for the quarter, including highlights of our divisional performance, followed by Adam, who will highlight our balance sheet and comment on our Go Forward plans.
Speaker Change: Following our comments, we will open up the line for questions.
Speaker Change: 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 Security's Litigation Reform Act of 1995.
Speaker Change: 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.
Speaker Change: A detailed discussion of these risks and uncertainties are contained in the company's filing with the U.S. Security and Exchange Commission.
Speaker Change: During the call, we will use some non-GAAP financial measures as we describe business performance.
Speaker Change: The SEC filings, as well as the earnings press release, presentation slides at a company today's comment.
Speaker Change: and Reconciliation of the non-GAAP financial Measures to the Most Directly Comparable GAAP financial Measures.
Speaker Change: Today's call and slide presentation is being final cast on our website and will be archived there for at least one year.
I'll now turn the call over to Gerry Smith. Gerry?
Thank you, Tim, and good morning, everyone.
Gerry Smith: I'd like to start out by thanking all of you for joining our call today to review ODP's results and accomplishments for the first quarter of 2025.
Gerry Smith: We appreciate your continued interest and support as we execute on our strategy to transform our business and position ODP for long-term growth.
Gerry Smith: This morning, I'll provide an overview of our performance for the quarter and share updates on the progress we're making with our Optimized for Growth Plan and our BDB pivot.
Gerry Smith: Improve operational efficiency and position the company for future top-line opportunities.
Gerry Smith: As I walk through our performance, I want to focus on a few key themes that reflect our progress and provide context for our results as shown on slide 4 of the presentation.
Gerry Smith: First, our strategies focus on leveraging our core strengths to accelerate our B2B pivot and enhance our position in our traditional enterprise market segment while expanding into new higher growth segments like hospitality and supply chain as a service.
Gerry Smith: Our supply chain assets, distribution capabilities, and enterprise customer base set us apart in the industry and provide a strong foundation for future growth in both our traditional segments and beyond.
Gerry Smith: As a key element to our strategy, we are executing our optimized for growth, restructuring plan that realign our organizational structure.
Gerry Smith: Product offerings and go to market strategies to accelerate our BDB pivot and expand into new enterprise segments.
Gerry Smith: This plan also helps us reduce fixed costs, increase operational flexibility, while reducing future reliance on our retail business.
Gerry Smith: Second, strongly execution of our strategy has led to early signs of traction in key areas of the business.
Gerry Smith: In the quarter, we improved our overall year-over-year performance trends and generate significantly higher adjusted free cash flow, placements in a better position as we move throughout the year and execute our strategy.
Gerry Smith: Additionally, while yet to be notable in our results, we are making progress in expanding into new markets beyond traditional office supplies.
Gerry Smith: Finally, we have a solid balance sheet and available liquidity and a business model that generates free cash flow all which supports our strategy and provides flexibility for future growth.
Gerry Smith: Let me now expand on these points and provide more detail on a performance for the quarter, starting with slide five of the presentation.
Gerry Smith: Overall, we're off to an encouraging start to the year, with our overall performance reflecting positive momentum and improving year-over-year comparable trends in the first quarter.
Gerry Smith: Our focus on core operations and the execution of our strategy help us deliver a sequential improvement in adjusted EBITDA and generate a meaningful increase in adjusted free cash flow compared to last year.
Gerry Smith: Specifically, on an adjusted basis, we drove $76 million in EBITDA, and $45 million in free cash flow.
Gerry Smith: Our performance was led by our Consumer Division Office Depot, which delivered better top line trends compared to last year, while delivering higher margins on a sequential basis.
Gerry Smith: This helped drive stronger cash flow generation driven by targeting consumer initiatives supported by our optimized for growth plan.
Gerry Smith: While store closures impacted our total top line results, we are happy report that our comparable store trends improved 300 basis points from the fourth quarter of 2024 and improved 500 basis points from the same period last year.
Gerry Smith: Average order volumes are up over last year, our loyalty program enrollments are climbing, and categories like paper are performing better.
Gerry Smith: This performance trend accelerated in the month of April give us confidence in our momentum as we move into the next quarter and throughout the balance of the year.
Gerry Smith: In our B2B business, top line trends were about the same as last year, reflecting the continued soft market demand and impacted, coming over one large customer loss from mid-last year.
Gerry Smith: We also note that some of our recently announced new business contracts are still in the onboarding phase and are not yet running at full speed. That said, we're making progress in several areas. We're continuing to win new business and we're making progress in our expansion into the hospitality industry. [inaudible]
Gerry Smith: On the new business front, we recently added court trust, a large group purchasing collective with over 3500 enterprise members to our portfolio of our portfolio.
Gerry Smith: We're actively onboarding court trusts and other large new business wins which we expect will add to our performance in the second half of the year.
Gerry Smith: Additionally, we expect that the progress we are making in the hospitality sector will begin to more meaningfully contribute to our results in the second half of the year helping us change our trajectory
Gerry Smith: In all, given the new business we've added, are expected progress in the pace of onboarding
Gerry Smith: and our launch in the hospitality sector. We have growing confidence our results will improve in the second half of the year.
Gerry Smith: In our supply chain business there, we continue to deliver strong results, achieving over 85% year-over-year revenue growth from third-party customers, and adding significant new accounts to his portfolio.
Gerry Smith: This performance highlights the value of our supply chain capabilities and the growing demand for our services. And finally, from a cash management standpoint, our team continues to effectively manage the business and inventory to maximize cash flow.
Gerry Smith: Cash conversion improved significantly in the quarter, hoping to generate 45 million in adjusted free cash flow, which was more than double the free cash flow we generated in the same period last year.
Gerry Smith: I'd like to thank my team for their dedication and focus on cash management.
Turn in to slide six
Gerry Smith: I'd like to provide an update on our progress in the hospitality market
Gerry Smith: Three months ago, we announced a strategic partnership with one of the world's largest hotel management organizations
The company preferred provider for operating supplies and equipment.
Gerry Smith: While we're at the early stage of our deployment, we made progress in expanding into this growing $16 billion market segment.
Gerry Smith: We're excited about this opportunity as the lines perfectly with our core strength and supply chain and distribution and represents an important step in our efforts to diversify beyond office supplies. [inaudible]
Gerry Smith: Our first partnership covers approximately 15,000 potential customer locations within this hotel management group and we believe it was served as a foundation for future growth in the segment and other related industries.
Gerry Smith: Our key accomplishments include establishing agreements with leading suppliers like Sobo Westex and Hunter Amenities, gave us access to supply of premium hospitality products such as linens, towels, and personal care items.
Gerry Smith: Next, building up inventory to meet anticipated demand. While inventory build and sourcing has taken a bit longer than anticipated, we're gaining momentum in building our position to meet future demand.
Next, adding sales talent with a deep hospitality experience drug growth.
Gerry Smith: Additionally, engaging with potential customers and franchises whose feedback regarding services has been positive and encouraging Next, force the relationship and sign a supply agreement with a key industry player that we believe will accelerate discussions with other hotel management companies
Gerry Smith: and lastly, we're also an ongoing discussion with several other key market participants to develop future relationships. Thank you very much.
Gerry Smith: While we are still in the early stages of our launch and have more work ahead, these efforts are laying the groundwork for ODP to deliver meaningful growth in this segment.
Gerry Smith: We expect these initiatives to begin contributing more standpoint to our results beginning in the second half of the year.
Gerry Smith: And finally, I want to highlight the progress we're making with our Optimize for Growth Restructuring Plan. This is shown on Slide 7.
Gerry Smith: As a reminder, this initiative focuses on capitalizing on our core strengths to examine growth in the B2B distribution and third party logistics segments while reducing our fixed cost infrastructure and eliminate future retail exposure and associated liabilities.
Gerry Smith: The plan to realize our organizational structure, product offerings, and go-to-market strategies to target high-growth opportunities in the B2B market, while also expanding into new enterprise segments including hospitality, healthcare, and adjacent sectors.
Gerry Smith: We made significant progress in the quarter, executing efficiency measures targeted at reducing fixed costs.
Gerry Smith: We close nine retail stores in the program and eliminate areas of corporate support structure.
Gerry Smith: The progress we are making is helping us redirect resources and add flexibility to our operations in both our consumer and V2B divisions.
Gerry Smith: Before I turn over to Max, I'd like to reiterate that we are off to a better start to the year.
Speaker Change: Driving improved overall trends and triggered a significant increase in adjusted free cash flow.
Speaker Change: Our consumer business has improved and we are anticipating continued momentum in months ahead. In our B2B business, we are winning a new business and are participating better trends in the second half of the year as we onboard new customers and drive more meaningful results in hospitality segments.
Speaker Change: We will continue to focus on the core, driving our strategy and initiatives, remaining committed to generating value for our shareholders.
Speaker Change: I also note that we are evaluating the tariff situation that has been evolving over the past few months [inaudible]
Speaker Change: While we're down immune from potential impacts, our team has been working closely with their vendors of outstanding strategies, but we've taken previous actions we believe will help us mitigate potential impacts. With that, I'll turn over to Max.
Speaker Change: Thank you, Gerry, and good morning to everyone on the call. I'm Max Hood, co-CFO.
Max Hood: I would like to cover the specifics of our results for the first quarter on Slide 9. Please note that our results as presented are for continuing operations.
Max Hood: We've generated total revenue of 1.7 billion in the quarter, reflecting a 9% decline compared to the first quarter of last year. However, this result marks an improvement in the year over year trend compared to prior quarters.
Max Hood: The decline in sales was primarily driven by several factors, including 46 fewer stores and operation, reduced retail and online consumer traffic, and lower sales within ODP business solutions.
Max Hood: Our gap results in the quarter included $86 million of charges, primarily related to $48 million of restructuring expenses associated with our Optimized for Growth Plan, and $30 million in non-cash asset impairments of operating lease rate abuse assets associated with our retail store locations and distribution centers.
Max Hood: The balance of the charges in the quarter were related to the impairment of certain software and other store-related fixed assets.
Max Hood: Notably, the initial restructuring charge is associated with the Optimized for Growth Plan, included $36 million of severance costs that we are estimating to incur over the life of the plan.
Max Hood: Considering these charges, Gap operating loss in the quarter was $32 million, versus Gap operating income of $41 million in the prior year period.
Max Hood: Excluding these charges, adjusted operating income for the first quarter was $54 million, compared to $66 million in last year's first quarter.
Unallocated Corporate Expenses were $20 million in Q1.
Max Hood: Adjusted EBITDA was $76 million in the quarter compared to $91 million in last year's first quarter.
Max Hood: This includes adjusted depreciation and amortization expense of $25 million in the first quarters of 2025 and 2024.
Max Hood: Excluding the after-tax impact from the items mentioned earlier, adjusted net income from continuing operations for the first quarter was $32 million or $1.00 and $6.00 per diluted share, compared to $50 million or $1.31 per diluted share in the prior year period. The first quarter was $2 million or $1.00 per diluted share in the prior year period.
Max Hood: Now turning to our strong cash flow generation in the quarter.
Max Hood: Operating cashflow from continuing operations in the quarter was $57 million, which included 10 million in restructuring spend.
Max Hood: This compared to cash provided by operating activities of continuing operations of $44 million, including $4 million in restructuring spend in the same period last year.
Max Hood: The year-over-year increase in operating cash flow was a result of our operational discipline and prudent working capital management, converting recent inventory investments into cash as we indicated last quarter. This led to strong cash conversion in the quarter.
Max Hood: Capital expenditures were 21 million in the first quarter of 2025 versus 31 million in the prior year period as we continue to prioritize capital investments towards B2B growth opportunities, supporting our supply chain operations, distribution network and digital capabilities.
Max Hood: Adjusted free cash flow in the quarter was $45 million, a significant increase as compared to adjusted free cash flow of $17 million generated in the same period last year.
Max Hood: Now turning to our consumer business, Office Depot, as shown on Slide 10.
Max Hood: Office Depot is off to a strong start to the year, with year-of-a-year top-line trends and margins improving in the quarter as targeted, profitable sales strategies gain traction.
Max Hood: reported sales were 838 million in the quarter, down 11% compared to the prior year.
Max Hood: This result represented an improvement in the year-over-year trend we reported in the same period last year [inaudible]
Max Hood: Overall, sales were impacted by 46 fewer retail locations and service associated with planned store closures, as well as lower traffic trends and online sales, partially offset by higher average order volumes and the positive impact of targeted sales promotions.
Max Hood: In total, we closed 12 retail stores in the quarter and had 857 stores at quarter-end.
Max Hood: Our targeted sales initiatives are helping to drive a significant improvement in comparable
Max Hood: On a same-store basis, sales were down 5% year over year, representing a 500 basis point improvement in our same-store comp over last year's first quarter.
Max Hood: On a percentage of revenue basis, this result represented a sequential increase in margins as our sales mix and targeted initiatives helped to partially offset the impact of lower revenues.
on a year-over-year basis operating margins were flat.
Max Hood: Moving forward, we will continue to execute upon our profitable sales initiatives in our retail business, balancing our pricing and promotion strategy with demand elasticity.
Speaker Change: We are excited about our progress, and as Gerry mentioned, our efforts have continued to gain momentum as we entered the second quarter [inaudible]
Speaker Change: We will also continue executing our Optimized for Growth Plan that will target efficiency gains across the organization and help us lower fixed costs
Speaker Change: Now turning to ODP Business Solutions, as shown on Slide 11.
Speaker Change: Demand remains soft during the quarter, consistent with trends in the same period last year, as cautious business conditions and restricted enterprise spending budgets persisted.
Speaker Change: Reported revenue was 852 million, down 8% year-over-year, but showing slight improvement compared to the trend in the fourth quarter of last year.
Speaker Change: Results were impacted by weaker enterprise spending and lingering effects of a large customer loss mid last year. However, we expect to comp over this customer loss by next quarter, which should help improve trends.
Speaker Change: Furthermore, while onboarding of certain recent new customer wins has been slower than anticipated, progress is being made, and we expect these contracts to contribute more meaningfully to future quarters.
Speaker Change: Regarding new business, we are executing initiatives to convert our strong new business pipeline into revenue to help us regain top line traction.
Speaker Change: We're initiating service for one of the largest contracts and company history as we previously announced.
Speaker Change: In all, when you look at the past three-quarters, we have one contract that represent over $500 million in annual spend when fully implemented.
Speaker Change: Only a portion of this is currently onboarded, but as we progress these contracts should help improve the trends beginning in the second half of the year.
Speaker Change: Another area that we see great promise is in the hospitality market.
Speaker Change: While it has only been a couple months since our announcement of our entry into this industry sector, we are making great progress and building the foundation for future growth in this segment.
Speaker Change: We've built key relationships with major suppliers in the industry. We have forged new relationships with other key players in the industry and we have met with many potential customers, receiving great feedback regarding our service and entry into the industry.
Speaker Change: Considering our progress, we are anticipating that our efforts in this area will more meaningfully contribute to our results in the second half of the year and beyond.
Speaker Change: From a product standpoint, most categories were lower on a year-over-year basis including technology products, a factor that many other companies are experiencing industry-wide.
Speaker Change: Our adjacency product categories as a percentage of total revenue, a primary KPI, remained at 44% in the quarter, generally consistent with last year and recent trends.
Speaker Change: From an operating perspective, the flow through effective lower revenues, pricing mix, and related fixed cost due leveraging resulted in operating income of $21 million in the quarter compared to $31 million in the prior year period.
Speaker Change: Despite the challenges, we are encouraged by our improving position for the future as we execute our strategy and expand into new market segments.
Speaker Change: This positions us to improve recent trends and drive our B2B business as we move into the second half of the year.
Speaker Change: Now, turning to our results and our supply chain business, there, as shown on slide 12.
Speaker Change: Bares reported top line performance reflected lower sales from its internal customers, ODP business solutions, and Office Depot, partially offset by continuing to build momentum and driving revenue growth from third-party customers.
Speaker Change: On a consolidated basis, they are delivered sales of $1.2 billion in the quarter, primarily derived from supporting the purchasing and supply chain operations of ODP business solutions and Office Depot, which are effectively eliminated upon consolidation.
Speaker Change: They are continued to make strong progress in executing its strategy to serve third party customers, adding new logos to its customer list and driving a strong increase in external revenue.
Speaker Change: Being mindful that some of VAIR's third-party profitability is accounted for as a contra expense instead of flowing through revenue, for Q1, VAIR delivered third-party revenue of $17 million, up 89% over last year.
Speaker Change: They are drove third party EBITDA of $3 million, flat with the prior year as the company invested in resources to onboard its slate of new customers in the quarter.
Speaker Change: Now, I'll turn it over to Adam to cover our balance sheet highlights.
Speaker Change: Thank you, Max. It's great to be here with everyone this morning. I'm Adam Haggard, Co-CFO.
Speaker Change: Turning the slide 14, our balance sheet and liquidity position remain solid, ending the quarter with total liquidity of $653 million, consisting of 185 million in cash and cash equivalent and 468 million in available credit under the fourth amended credit agreement.
Total debt with $262 million in dollars.
Speaker Change: Moving on to Capital Allocation, we continue to execute our Capital Allocation Strategy, primarily investing in our core to drive the future of our business.
Speaker Change: We invested $21 million in CAPEX in the quarter versus $31 million in the prior year period, targeted in our supply chain operations, distribution business, and digital capabilities to set ourselves apart in the industry.
Speaker Change: As we move forward, we expect to prioritize our capital allocation towards investment in core B2B resources, positioning us to capture the growth opportunities Gerry discussed earlier.
Speaker Change: We believe investing in our B2B business and expanding into new market segments will drive the highest ROI and create long-term value for shareholders.
Speaker Change: Before I turn the call back to Gerry, I would like to make a few comments about our preparedness regarding the evolving tariff situation that has been unfolding over the past few months.
Speaker Change: As Gerry mentioned, we have taken proactive measures to position ourselves effectively to mitigate potential impacts as the tariff situation continues to evolve.
Speaker Change: Over the past several years, we have diversified our sourcing strategy, shifting away from China to other countries in the region for direct imports supporting our private label products.
Speaker Change: On the indirect side, we are closely collaborating with our vendors, monitoring developments and implementing actions to minimize potential impacts.
Speaker Change: These measures include sourcing products from countries less affected by tariffs.
Speaker Change: Introducing Strategic Pricing Initiatives where feasible and identifying alternative grants to reduce exposure.
Speaker Change: While we recognize that we are not entirely immune to the changes in the terror environment, we are confident that the steps we have taken have positioned us well to navigate this dynamic situation. [inaudible]
Speaker Change: Looking ahead, while we are not providing detailed guidance at this time due to market dynamics and ongoing care and uncertainty, we can share the following directional outlook for the year.
Speaker Change: We anticipate continued improvement and trends within our consumer business over the coming quarters.
Speaker Change: and our B2B business. We expect to see improving trends as we onboard new customers and gain traction in the hospitality sector, with the majority of this improvement expected in the second half of the year.
Speaker Change: There is expected to maintain its momentum by converting its customer pipeline, expanding its customer base, and driving growth and third-party revenue.
Speaker Change: Finally, we anticipate significantly higher adjusted free cash flow generation compared to last year.
Along with further improvements to our leverage ratio by your end.
Speaker Change: We remain focused on executing our strategic priorities and focus on our core to deliver on these expectations.
With that, I turn the call back to Gerry.
Speaker Change: Thanks, Adam. Before we turn over for questions, I'd like to reiterate a few key points. First, we're off to a better start to the year, improving our consolidated year-over-year trends, and generating a significant increase in adjusted free cash flow.
Speaker Change: While the consumer business was the primary driver of our improved friends and this performance has accelerated as we entered the second quarter of the year, we believe that our BDB business isn't positioned to generate improving trends as we move forward, particularly in the second half of the year.
Speaker Change: We have continued to win new business. In fact, over the past three quarters, we have won new contracts worth over one half of a billion dollars and annual revenue was fully implemented.
Speaker Change: We are encouraged by our progress and recognize we have more work to do as we focus on our core business.
Speaker Change: Second, we're a successfully executed on our strategy and making progress in our expansion into the hospitality industry sector. We have forged key agreements with major suppliers and key market participants.
Speaker Change: We have met with many potential customers covered in our first agreement and we are receiving very positive feedback.
Speaker Change: We're engaging in discussions with other large hospitality management companies for future agreements.
Speaker Change: and we're adding to our sales expertise in building relevant inventory to help us meet future demand.
Speaker Change: In all, while we are in the early anings, we believe our efforts to expand into the hospitality sector will more meaningfully contribute to our results in the second half of the year.
Speaker Change: Third, we're actively executing our optimized for growth restructuring plan, which is designed to reduce fixed cost, accelerate our B2B pivot, and gradually decrease our reliance on retail.
Speaker Change: Furthermore, as highlighted earlier, our flexible business model proactively measures have positioned us well to help mitigate potential tariff impacts effectively.
Speaker Change: And last, considering our strong balance sheet, valuable asset base, supply chain and distribution capabilities, and strong cash flow profile, we believe ODP offers a unique and compelling value for shareholders as we execute our strategy.
With that operator, we'll turn it over for questions [inaudible]
Speaker Change: Thank you. To ask a question, please press Star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 1 on again.
Speaker Change: Our first question comes from the line of Greg Burns with Sedoti. Your line is open.
Greg Burns: Good morning. Could we maybe just start off with getting a little bit more insight into some of the...
Greg Burns: Momentum you have on the retail side of the business maybe a little bit more detail on what kind of sales promotions and sales strategies you've been implementing that have been driving the the improved performance.
Gerry Smith: Sure, any good morning, great, Mrs. Jerry. Thanks for joining the call today. I love to say that first. I'm super excited with the progress there.
Gerry Smith: So I would say there's four key things to that. First, over the last seven years, we've developed a really good muscle in our store that took a long time to develop with our store leadership, but meeting the greedy customers to drive right into a promoter's score. We've taken that muscle and turned it into a sales motion.
Speaker Change: So they are meeting a great consultant at the front door. Second Thank you.
We've had a significant change in our merchandising strategy.
Speaker Change: Story last year at the UBS conference with Michael, I teased a little bit of that and marched.
Speaker Change: But we're finding a different way to sell and we have a number of product categories that are called be much better than the years before and we think that and we're giving a different value to our customers through that [inaudible]
Speaker Change: Third, very importantly, we have a daily management system that Kevin Moffat, my president, and the vision is doing a great job with this vision [inaudible]
Speaker Change: Andrew, but I joined that call as well. We look at every store every day. We look at every district for every 42 districts every day.
Speaker Change: and we look at the performance of the three regions of your deck.
and having that also a game-of-fight system [inaudible]
Speaker Change: that we put in place, you know, 60 days of village, has made a dramatic difference in the business. Merchandising peace started in Q4, you know, our CEO of our advertising business came up with a great idea and we drove that. But it's across these four things which has driven tremendous improvements.
Speaker Change: I mean, having a 500 basis point difference in comp is dramatic from a year-over-year perspective. I will tell you, Greg, I'll tell everyone publicly, April's even better, from a comp perspective, we're about a negative 4.
Roughly in April for a call perspective.
Speaker Change: and sequentially, in the first nine days of make, we're even better than that.
Speaker Change: So we're really excited with performance. I want to thank Kevin, Dish, Andrew, and Steven, especially my three store-leaders, Carla, Billy and Chris, where they're absolutely executing brilliantly across the store chain. And this is important. This generates a tremendous amount of cash flow.
Speaker Change: tremendous amount of margin dollars, and Max and Adam both said in their prepared remarks. We're seeing a difference and we're optimistic this is going to make a difference over the long term as we ramp up both there and in the B2B businesses.
Speaker Change: Okay, great. Thanks. I guess considering the improved results in the traction you're seeing, how should we think about the pace of store closures going forward?
I guess.
of Store Optimization
Speaker Change: and the most margined dollars for the business. I will say with some of these cost levels, it will change some of the, completely change some of the trajectory of optimizer growth because as their shareholders, they want more cash, they want more margin dollars.
All that say more tasks will be great for the business [inaudible]
Speaker Change: and we will evaluate the stores, Adam and Mike are running models right now looking at if we keep this.
Speaker Change: You know, negative five, negative four comp, which is different than our models. What's it mean from a five perspective? And it will evaluate that going forward.
Speaker Change: Now let's always share what's here and the most important thing is optimizing cash, optimizing margin.
Speaker Change: And I'm excited because, you know, we're demonstrating results. I'm going to produce as Adam said in his report remarks. We're going to be very more careful of the year. And we're super excited by that. And our balance, he got stronger Euro on a quarter of a quarter basis.
Speaker Change: This is a retail business that should limit a lot of the fear that to your shoulder base, A, what's going on in the retail business? Our retail business is running extremely well right now and we're going to continue to focus on the merchandise industry. They're a great store leadership, the daily management model to optimize cash and margin dollars across the business.
and Maxie Linares.
Speaker Change: Yeah, I'd like to just reiterate your comment and just say that you know as we go through each quarter we'll be continuously you know staring at
Speaker Change: The different stores and understanding the modeling and trying to extend the stores as much as possible to drive as much cash flow in the future as we possibly can in the future.
All right, great. And then on the solution side,
Speaker Change: Supplier perspective, we love the supply relationships, but the lead times are much longer. So as we said, our prepared remarks have taken us longer to actually just get inventory in on some of the key, with the minimal viable categories.
Speaker Change: And so we're rushing hard to do that. We are hiring a ton of people, qualified individuals to drive in that space.
Speaker Change: And I think from just the sides of our relationship with court trust, it's a huge contract, there's a lot of people in the context and we're working really hard and we're really pleased with the court trust relationship and that team and the passion.
Speaker Change: and Greg and the whole organization, but we will continue in coming and we think it's coming in a second half but we're going to start a daily focus on dates business like we did Kevin's, so that worked. [inaudible]
Speaker Change: And Max and I think we talked about that earlier this morning. So we're going to have that same daily momentum because I think that daily discipline and emphasis on results is going to what we took and what we found super successful retail and and gain the fine whose first and the last. [inaudible]
Speaker Change: We'll be a great motivator for our B2D sales teams as well.
All right, great. Thank you.
Michael Lasser: Thank you. Our next question comes from the line of Michael Lasser with UBS. Your line is open.
Michael Lasser: Good morning. Thank you so much for taking my question. What categories within the retail business? Have you seen strengthen over the last?
Michael Lasser: Do you want, and is there evidence that you're seeing any signs of poor forward of demand as the consumer is trying to race out and buy some products?
Michael Lasser: Ahead of what could be some price increases in reaction to the carols. Thank you.
Gerry Smith: You know, I have a little thing, you know what, Michael, thanks again for hosting me back in March. We really appreciate that great conference. Great to see you, Jerry. Thanks to you. For the category perspective, I'll sort of answer a reverse direction.
Gerry Smith: and we've seen success in sort of non-tariff categories, honestly, and so, and we've done a really good job in mitigating tariff exposure. We saw a little bit early in a, like a two or three day period, for like, for better sure intact.
Gerry Smith: We saw a bit of a spike. Did that normalize pretty quickly? These are sort of in our core category, Michael, across the board of core supplies.
Gerry Smith: I think that, you know, I'm going to need careful, obviously, the competitors are sitting on the phone listening but, you know, I'd be happy to spend time with the offline as well but we really made a shift from our merchandise strategy, from our traditional high load to a different merchandise strategy. That's more of eye-oriented for our customers, we'll think of that.
Gerry Smith: is really at him a lot of value. And what would he be with you, perhaps I am later in the week, or whatever you're available to let the catch up with him?
That sounds great. Call on it.
Speaker Change: Hello, much of an impact. Will the tariff situation be to ODP Corp across all of its seconds? And how do you plan to mitigate the potential impact of tariff? [inaudible]
Speaker Change: We believe we've mitigated almost all the impacts, let me explain that because people might go, how do they do that?
Speaker Change: Perrott, a lot of it, in fact, was on Martin minimum average price, what we call map chronics that are partners, the Flash of Liars at it.
Speaker Change: So for example, our tech providers, they just rate the actual cogs of the product.
and so the whole market flows up.
Speaker Change: and so from a pricing first from a absorbing price, a cost increase.
Speaker Change: The whole market is doing that. The whole price looks up and we're able to pass that through contract and pass that obviously change our store frame. That was the majority of a lot of it.
Speaker Change: Second is, we did a really good job on our direct imports. It's a big chunk of our calls for private label other pieces. Back in 2020, if you remember me, we shifted a bunch out of China to other countries. [inaudible]
Speaker Change: and so it's a Vietnam, Indonesia, Malaysia, a number of places, Sam and our GSO team have done and John's organization, done a great job of completing this.
and so weep.
It dramatically reduced our impact on our breadcogs in China.
And so, as we have the pause from Mike,
Speaker Change: We're looking at that very, very carefully. We're looking at that very, very carefully.
Speaker Change: We have a three times a week war room that is my old staff, old procurement teams, all the merchant thrones, all looking at inventory, but because of the fact we've had that shift in the end that indirect cost, we are not heavily exposed at this time.
Speaker Change: Well, and if there's a 10% we believe we can drive that into into into our pricing and we're not going to have a huge impact [inaudible]
Speaker Change: There is a small impact that we think we've mitigated over again. We'll look at this on a daily basis. As you know, something could change overnight and something else could go up. Obviously, we're all open and bright. There's a settlement in the future as well. Appreciate it.
Speaker Change: Okay. One last question, recognizing you not providing guidance, but how?
here at least conceptually. [inaudible]
Speaker Change: and the B2B business in light of the potential for continued underlying softness in the core business.
Speaker Change: But being offset by the ramp in some of the new business activity that seems to be on the horizon. Thank you very much Thank you very much.
Speaker Change: At a high level, we do feel very confident from a cash flow perspective that we're going to be appreciated for the year, as Adam said.
Speaker Change: And then, as we said in our prepared space, we do think there will be sequential improvement in the second half of Dave's business. You know, it's still similarly to figure out that exact ease.
Speaker Change: But we do feel like we have line decided to improve it in the second half of the year across the ACE business. But Adam and Max, please jump in. Yeah, Michael, it's Max Gomes, I'll see you again. Yeah, so while we're not providing guidance, you know, we
Gerry Smith: We do need to evaluate the tariff intact, what that's going to do to customer demand, but as Gerry said, we tried to provide as much high level guidance as we could. One other point is on free cash flow, so the performance of our consumer business right now is driving more cash, more margin, so we expect to have higher free cash flows than we did last year as well.
Speaker Change: But really, we see a great trajectory with all three of our business units right now. I'm really excited about it.
Speaker Change: Thank you so much. He does a solution so everyone understands. Sorry about that. Yeah, yeah. Thank you very much and good luck.
Thank you, my group.
Speaker Change: Thank you. Our next question comes from the line of Joe Gomes with Noble Capital. Your line is now open.
Good morning.
Margeau.
Joe: I apologize, I fell off, so I missed some of the questions, so if I repeat something, just let me know, we'll move on.
Speaker Change: So a lot of talk about the tariffs and the potential impact [inaudible]
Speaker Change: I don't know if you break it out this way or not, but I guess what percent of the business or revenues is consumable products versus non-consumable products.
Speaker Change: Can you clarify why you need consumable versus non-consumable? You need lights.
Speaker Change: So paper, I mean, if you're in the office and using paper, you're consuming paper versus a deck if you buy it, that's at once.
Speaker Change: versus my furniture, which is a guy I got. Yeah, so, first, you know, a big piece of our business
Speaker Change: All our paper supplies is made in the USA, so thank you for our two suppliers that have U.S. plants and we also have facilities in Canada for our grand toy business, so.
Speaker Change: That's a super important piece because we don't have exposure of other companies to use imported paper versus being made in the USA. I would say that we've done a really good job on the considerable core products.
Speaker Change: which is what we're seeing to strengthen our need to see business, that we talked about, the comp changes, that's all consumable products that's driving that. So why we're excited with the progress there even during this tear of peace?
Speaker Change: We're seeing a substantial cost improvement on a monthly and weekly basis, and so we think our strategy is working. So we've gone across all those areas and we've evaluated where we think impact is. Other consumer products are really affected by the minimum average.
Speaker Change: Christy, as we talked about, and that's, you know, e-contoner and some of the technology products.
Speaker Change: And there was a pause on the higher hair, so a lot of that. And so that's allowed us to not have the short term in fact, in fact across your at this time. There are increases in this product, but that's going to be the whole market will go up. And so that's allowed us to not have the short term in fact across your at this time.
Speaker Change: It's honestly, that happens a lot throughout the last 9-10 years pricing and costs go up.
Speaker Change: Andy, then there's a pretty consistent demand tire as a result of that, so...
Speaker Change: We don't have a lot of things that we don't think we're exposed longer term promote, because about working with suppliers, making sure we're in the right little care of locations, and honestly, stuff that wasn't.
Speaker Change: Yeah, we didn't think we were in our position, we put orders and we've been very disciplined in our procurement organization.
Speaker Change: That's it, that's it, that's it, which is part of theirs, led by John Gantworth, our perforial organization, that has been a great job of them.
Speaker Change: of working with our partners and mitigated a lot of the exposure, but being created, looking at different suppliers, looking at different, obviously different factories they have across the world and are a little careful looking. Thank you very much.
Thanks for that. And you talk about some initiatives.
Speaker Change: You convert your strong pipeline of potential new business. I guess the question is kind of what's different, you know, what are you doing now that you weren't doing in the past?
to convert that pipeline into new business.
Speaker Change: Great question. First, we're bringing in additional leadership in some of these new categories. They're very qualified in those marketplaces, which is super important.
Bye-bye.
Speaker Change: Second, we've started a really rigorous management system on a weekly basis. We're going to clip that up even more to make sure we're driving that. And then we're having a lot of CEO meetings. Thank you very much.
President of the President meeting on frequent basis. [inaudible]
with these new partners and new customers to ramp up.
Speaker Change: It's a brand new category, we love it because it's an invitation only category which a lot of you can't see people can't open the floodgates and run in.
Speaker Change: But it's a big market for learning, I think, that we're building the muscle. So, like I talked about in retail, we've dirt-building muscle in Q4, on this merchandise and change and store operations in the future.
Speaker Change: We're at, we feel we're serving us and we're seeing those results now. We feel like we're sort of in that same pattern of building the muscle of building the field's capability. We've learned a ton about the inventory management and the lead time of the product and work with these partners and getting inventory of it. [inaudible]
Speaker Change: And then we've set to build that capability, starting to ramp those across off-metallied and across court trust and across some of these other large ones we have across the visits. So we believe in the second half-degree of starting to be a result, so I think that will build a fundamental force going into 26 as well.
Okay.
Speaker Change: And then lastly, for me, I didn't hear any mention of the buyback of something that you guys had been, you know, I know
Speaker Change: last year was pretty big the year before and at the end of the year your bench and you were cutting back on that so I don't know if he give us an update on that.
Speaker Change: Thanks for the question. I recognize the unintended message it sends. Let me say that the board management team have complete confidence in the future of the company.
Speaker Change: And very importantly, we continually evaluate potential stock repurchase of our regular basis and we assess if there are any legal or regulatory constraints.
Speaker Change: This approach also applies to potential management and director purchases as well. Usually a little comment on there's individual buying decisions.
Speaker Change: And so, that's, I think I've answered as correctly as I can.
Great. Thanks. Appreciate it. I got back and cute.
Speaker Change: Thank you. That concludes the Q&A session for today. I will now turn the call back over to the ODP Corporation CEO , Gerry Smith for any closing remarks.
Gerry Smith: Yes, excellent. Thanks for everyone for enjoying the holiday. We are confident that our core...
Gerry Smith: Business is improving, we're going to continue to focus on our core, we're going to focus on it.
continue the B2C, Co-op Improvement, Cross-R-R Merchandise, Dean.
Gerry Smith: Our store execution has been great and our daily focus, we're going to also put that focus, continue our focus, our B2B business on ramping up.
Gerry Smith: Our core business of these new big wins as well as our hospitality business. And we're excited with the 85% year of year growth in Jones business as well. And so we're going to stay focused on generating cash.
Gerry Smith: Driving, bargain dollars and driving, continued improvement at least all, much stronger balance sheets from a Q4 to a Q1 perspective.
Gerry Smith: and we're confident that Adam and Max Bull said that's going to continue improving the future, and we'll have the ability to continue to build a cash-industin future business opportunities to maximize our older value. Thank you so much, everyone, for joining the call today. Appreciate it, great work.
Gerry Smith: That was really good. Thank you for your participation. That concludes today's call. You may now disconnect.
John
Joseph Gomes, Joseph Gomes, Joseph
Speaker Change: Copyright © 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent.
Michael Jackson, Joseph Gomes, Joseph Gomes, Joseph Gomes
Joseph Gomes, Joseph Gomes, Joseph Gomes, Joseph Gomes
[music]
and and and and and and
Michael Jackson, Joseph
James
Speaker Change: and a a a a a a a a a a a a a
John