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ODP Corporation (ODP) shifts its focus from retail operations to digital transformation

ODP will spin off its Business-to-Business (B2B) division into an independent company

Shares of The ODP Corporation (NASDAQ: ODP) were up 7% on Wednesday. The stock has gained 55% since the beginning of the year and 113% in the past 12 months. The company reported mixed results for the first quarter of 2021, with earnings surpassing expectations while revenue fell short. ODP also announced that it was splitting into two independent, public companies.

Quarterly performance

Total sales for Q1 2021 fell 13% year-over-year to $2.4 billion and was shy of analysts’ projections. Adjusted EPS of $1.21 remained unchanged from last year but surpassed expectations. Sales during the quarter were hurt by fewer number of retail stores being in service as well as a reduction in sales caused by the effects of the COVID-19 pandemic. Both product and service revenues witnessed double digit declines during the quarter.

ODP recorded double-digit sales declines across all its business divisions mainly due to store closures and other effects related to the pandemic. Even though store sales suffered, other channels picked up pace during the quarter. Within the Business Solutions Division, the pandemic impacted operations driving sales 16% lower versus the prior year but demand in ecommerce climbed 3%.

Sales in the Retail Division fell 10% as the company closed several underperforming stores and thereby had fewer retail outlets at the end of Q1. At the same time, ODP saw a 35% growth in its buy online, pick up in store (BOPIS) offering. The CompuCom Division saw sales fall 17% as the pandemic led to lower service volumes and the malware incident led to lower billed service revenues.

Digital transformation

During the quarter, ODP made progress on its digital transformation initiatives. The company integrated the P2P eProcurement software platform BuyerQuest into its new technology platform business thereby expanding its customer base and its pipeline of opportunities. Capex decreased to $13 million in the quarter compared to last year as the company reduced its investments in retail operations while focusing more on its digital transformation, ecommerce capabilities and distribution network.

Spin-off

ODP announced that it is spinning off its Business-to-Business (B2B) division into an independent company. It will distribute the shares of the new company as a tax-free dividend to ODP’s shareholders who will own 100% of the equity in both the independent, public companies. The spin-off is expected to be completed during the first half of 2022. This move is expected to help both companies pursue their own strategies with their specific set of investment opportunities and growth objectives.

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