Executive Summary / Key Takeaways

• The ODP Corporation is executing a profound strategic pivot, leveraging its robust supply chain and distribution strengths to transform into a B2B solutions provider, with significant expansion into high-growth adjacent markets like hospitality.
• The "Optimize for Growth" restructuring plan is central to this strategy, systematically streamlining operations, reducing reliance on the traditional retail footprint, and strategically reallocating capital towards high-ROI B2B opportunities.
• Recent Q2 2025 results demonstrate tangible progress, with improving year-over-year revenue trends in the B2B segment, sustained strong performance in retail, and a significantly increased adjusted free cash flow outlook, now projected to exceed $115 million for 2025.
• ODP's differentiated technological capabilities in supply chain visibility and granular costing provide a critical competitive moat, enabling it to secure large, complex B2B contracts and offer superior service.
• Despite persistent macroeconomic headwinds and intense competitive pressures, ODP's disciplined operational execution and strategic investments position the company for sustainable long-term value creation and an improved market multiple.

A Strategic Evolution: From Office Supplies to B2B Solutions Powerhouse

The ODP Corporation, founded in 1986, has long been recognized as a prominent provider of office products and services. However, the company is undergoing a significant strategic evolution, transforming from a traditional office supplies retailer into a diversified B2B distribution and solutions platform. This pivot is a direct response to the challenging, competitive landscape and the structural declines observed in the traditional office supplies market. ODP is strategically leveraging its deep-rooted strengths to unlock new avenues for growth.

Historically, ODP expanded its footprint through key acquisitions, including the 2013 OfficeMax merger and the integration of over 20 regional "Federation" office supply distribution businesses. These moves broadened its reach and diversified its offerings. More recently, the company initiated a series of strategic divestitures and restructuring efforts, such as the sale of its CompuCom Division in 2021 and the Varis Division in October 2024, to streamline operations and sharpen its focus. These actions laid the groundwork for the current, more aggressive B2B transformation.

At the heart of ODP's strategic differentiation lies its advanced technological infrastructure, particularly within its Veyer Division. Veyer offers unique visibility capabilities, allowing customers to track product availability, lead times, and deliveries throughout the supply chain. This level of transparency is a rare and powerful differentiator in the market. Furthermore, Veyer possesses an internal tool that enables SKU-level costing, a capability few third-party logistics (3PL) providers can match. This granular costing allows ODP to be exceptionally competitive on price while maintaining profitability.

These technological advantages are not merely operational efficiencies; they are foundational to ODP's competitive moat. They enable the company to offer predictable, high-quality service for complex deliveries, differentiating it from generalist e-commerce platforms and traditional distributors. This technological edge is critical for winning large, sophisticated B2B contracts and positions ODP as a "total solution provider" capable of integrating diverse product categories into a single, efficient supply chain. The company is actively pursuing a tech modernization roadmap, integrating key technologies to further advance its capabilities and service levels.

Competitive Landscape: Leveraging Strengths Against Giants

ODP operates in a highly competitive arena, facing direct challenges from industry giants like Amazon (NASDAQ: AMZN), Walmart (NYSE: WMT), Best Buy (NYSE: BBY), and specialized IT solutions provider CDW Corporation (NASDAQ: CDW). Each competitor brings distinct strengths to the market, forcing ODP to strategically differentiate.

Amazon, with its vast e-commerce platform and extensive distribution network, excels in digital convenience and broad product assortment. Walmart leverages its immense scale and cost leadership for mass-market appeal. Best Buy dominates in consumer electronics and IT support, while CDW specializes in enterprise IT solutions. Against these formidable rivals, ODP's competitive advantages are rooted in its specialized business services, established brand recognition (Office Depot and OfficeMax), and extensive distribution channels tailored for business needs.

ODP's unique value proposition lies in its ability to offer integrated workplace solutions, combining office supplies, technology, and specialized services like custom printing and furniture. This holistic approach, supported by Veyer's advanced supply chain technology, allows ODP to provide a more comprehensive and personalized service experience than generalist retailers. For instance, Veyer's visibility tools and SKU-level costing enable ODP to offer efficient, complex delivery solutions that are difficult for competitors to replicate, particularly for B2B clients requiring precise logistics.

While ODP may not match Amazon's digital innovation speed or Walmart's sheer scale in commoditized goods, its focus on operational execution for specialized services and its "invitation-only" entry into complex markets like hospitality create significant barriers to entry for new competitors. This strategic positioning, underpinned by its technological capabilities, allows ODP to carve out and defend profitable niches, fostering stronger customer loyalty in segments that value integrated solutions and reliable service.

"Optimize for Growth": A Bold Strategic Pivot

In February 2025, ODP unveiled its "Optimize for Growth" restructuring plan, a bold initiative designed to accelerate B2B revenue growth and fundamentally reshape the company. This multi-year plan involves a strategic reallocation of capital and resources towards higher-growth B2B opportunities, while simultaneously reducing the company's reliance on its traditional retail business.

A cornerstone of this plan is ODP's aggressive expansion into the hospitality industry, a burgeoning $16 billion market segment growing at a 4-6% CAGR. ODP secured a milestone agreement with one of the world's largest hotel management organizations, becoming a preferred provider for operating supplies and equipment (OS&E). This partnership, covering approximately 15,000 potential customer locations, has already led to the onboarding of about 1,000 new hotel properties and the establishment of key supply agreements with leading industry players like Sobel Westex and Hunter Amenities. Management reports "robust month-over-month growth" in this segment, with an encouraging "low double-digit percentage" increase in traditional product sales to hospitality customers, demonstrating ODP's emerging role as a total solution provider.

Beyond hospitality, ODP Business Solutions is making significant strides in securing new B2B contracts. This includes onboarding CoreTrust, a large group purchasing collective with over 3,500 enterprise members, and other substantial wins expected to materially benefit performance in the second half of 2025. The Veyer Division is also expanding its third-party logistics (3PL) services, achieving a 90% year-over-year revenue growth from third-party customers in Q2 2025 and a 32% increase in third-party EBITDA. This includes a major contract to provide warehousing and fulfillment services for a leading social media-focused e-commerce company, highlighting Veyer's growing market presence and capabilities.

To fund these B2B growth initiatives, ODP is strategically moderating its investments in the consumer business. The "Optimize for Growth" plan anticipates a "significantly smaller retail footprint" by 2028, with 23 retail stores and 3 distribution facilities already closed in Q2 2025. Total cash restructuring costs for the plan are estimated to be in the range of $185 million to $230 million, with non-cash costs including asset impairments and accelerated depreciation. These actions are projected to generate over $1.3 billion in total value over the plan's duration, including a $380 million uplift in EBITDA from cost savings and supply chain optimization.

Financial Performance: Resilience Amidst Transformation

ODP's financial performance in the first half of 2025 reflects a company in transition, balancing ongoing market challenges with the early benefits of its strategic pivot. Consolidated sales for Q2 2025 were $1.586 billion, an 8% decrease year-over-year, and H1 2025 sales were $3.286 billion, also down 8% year-over-year. These declines were primarily driven by fewer retail stores and reduced consumer/enterprise spending. However, management noted improving year-over-year trends, particularly in the B2B segment, with a 200 basis point improvement in comparable revenue trends.

Gross profit for Q2 2025 decreased by $32 million to $310 million, with the gross margin remaining flat at 20%. For H1 2025, gross profit decreased by $79 million to $671 million, and the gross margin slightly declined to 20% from 21% in H1 2024, mainly due to deleveraging of supply chain and occupancy costs. Despite this, the Office Depot Division saw a 140 basis point improvement in product margin in H1 2025, offset by deleveraging.

Operating income for Q2 2025 was $9 million (GAAP), and for H1 2025, it was $41 million (GAAP). Adjusted EBITDA for Q2 2025 was $47 million. The company achieved significant reductions in selling, general, and administrative (SG&A) expenses, decreasing by $24 million in Q2 2025 and $58 million in H1 2025, driven by cost-cutting across all divisions and corporate functions. SG&A as a percentage of sales remained stable at 18% for both periods. Asset impairment charges related to the "Optimize for Growth" plan amounted to $3 million in Q2 2025 and $41 million in H1 2025, reflecting the accelerated retail footprint optimization.

A standout financial highlight is ODP's robust cash flow generation. Cash provided by operating activities of continuing operations increased to $73 million in H1 2025 from $43 million in H1 2024, primarily due to improved working capital management. Adjusted free cash flow for Q2 2025 was $13 million, a significant increase from $5 million in Q2 2024, which is particularly impressive given the typical cash outflows in Q2 for inventory build. For the first half of 2025, adjusted free cash flow reached $58 million, more than double the $17 million generated in H1 2024.

ODP maintains a strong liquidity position, with $658 million available as of June 28, 2025, comprising $177 million in cash and cash equivalents and $481 million in available credit. Total debt stood at $245 million, and the company remains in compliance with all debt covenants. Capital expenditures for 2025 are estimated at up to $72 million, prioritized for B2B growth initiatives. The company has also "substantially moderated the pace of stock repurchases" to prioritize investments in its core B2B resources, with $725 million remaining under its authorization. No dividends were declared or are anticipated in the foreseeable future.

Outlook and Risks: A Path to Sustainable Growth

ODP's outlook for 2025 reflects cautious optimism, underpinned by the momentum generated from its strategic pivot. Management now expects to generate over $115 million in adjusted free cash flow for the full year 2025, a significant increase from previous expectations. This positive guidance is predicated on a relatively stable macroeconomic environment and minimal additional impact from the evolving tariff situation.

For the second half of 2025, ODP anticipates "additional top line improvement" in its ODP Business Solutions Division, driven by continued customer conversion and stronger sales traction in the burgeoning hospitality sector. The Office Depot Division is also expected to deliver "continued strong performance," contributing to overall cash generation. Analyst consensus estimates for the current fiscal year project sales of $6.53 billion (a 6.5% decrease year-over-year) and EPS of $2.88 (a 12.7% decrease), with a return to modest sales growth of 0.6% and EPS growth of 8.5% projected for the next fiscal year.

Despite the positive momentum, ODP faces several pertinent risks. The macroeconomic environment, characterized by higher interest rates and constrained consumer/enterprise spending, remains a significant headwind. While ODP has implemented mitigation strategies, the evolving tariff environment, with new tariffs announced in April 2025, could still impact the business, particularly given Veyer's global sourcing operations. However, ODP's proactive measures, including diversifying sourcing and leveraging MAP (minimum average price) products, where 57% of its inventory is either MAP-priced or exempt, are designed to limit potential impacts. The "Optimize for Growth" plan also carries execution risks, and the ongoing optimization of the retail footprint could lead to further asset impairment charges, particularly for the Office Depot reporting unit, if operating results deteriorate.

Conclusion

The ODP Corporation is undergoing a fundamental transformation, strategically pivoting from its legacy as an office supplies retailer to a dynamic B2B distribution and solutions provider. This shift, encapsulated by the "Optimize for Growth" plan, is not merely a defensive maneuver but an aggressive pursuit of higher-growth, more sustainable market opportunities. By leveraging its robust supply chain, unique technological capabilities in visibility and costing, and extensive B2B customer base, ODP is successfully entering complex, high-value sectors like hospitality and third-party logistics.

The improving financial trends in the B2B segment, coupled with resilient retail performance and significantly enhanced free cash flow generation, underscore the efficacy of this strategy. While macroeconomic headwinds and competitive pressures from larger, more technologically agile rivals persist, ODP's disciplined capital allocation, focused investments in B2B resources, and a clear technological roadmap provide a compelling foundation. For investors, ODP represents an undervalued opportunity, poised to unlock substantial long-term value as its B2B transformation gains further traction and its technological leadership continues to differentiate its offerings in an evolving marketplace.