The ODP Corporation (ODP)

Executive Summary / Key Takeaways

• ODP engineered a strategic pivot from a declining retail footprint to a B2B-focused distribution model, leveraging its Veyer supply chain assets and expanding into the $16 billion hospitality market, culminating in a December 2025 privatization by Atlas Holdings at $28 per share—a 34% premium that validated the transformation thesis.

• The Veyer division emerged as an underappreciated asset, delivering 64% external sales growth in Q3 2025 and unique SKU-level costing capabilities that position ODP as a competitive third-party logistics provider, generating third-party EBITDA growth while internal volumes declined.

• Despite a 9% consolidated revenue decline, the Office Depot retail division demonstrated remarkable cost discipline, increasing operating income 35% through store closures and overhead reduction, proving the segment could generate cash while the company reallocated capital to higher-growth B2B initiatives.

• Management's "Optimize for Growth" plan successfully onboarded major hospitality contracts and the CoreTrust group purchasing collective with 3,500 enterprise members, creating a pipeline exceeding $500 million in annual spend that began contributing to sequential B2B revenue improvement in late 2025.

• The investment thesis faced material risks from tariff exposure on 43% of inventory, macro-driven demand softness in both B2B and B2C channels, and execution challenges in scaling hospitality operations, though the acquisition price reflected confidence in mitigation strategies and cash flow resilience.

Setting the Scene: The Culmination of a Strategic Transformation

The ODP Corporation's story reached its final chapter on December 10, 2025, when an affiliate of Atlas Holdings completed its $1 billion cash acquisition at $28 per share, taking the company private. This outcome represented more than a financial transaction—it validated a strategic pivot that began decades earlier. Founded in 1986 as Office Depot, Inc. in Boca Raton, Florida, ODP spent its first 35 years building a dominant retail and B2B office supply empire. The 2013 merger with OfficeMax created scale, but the real transformation started in 2020 when the company renamed itself The ODP Corporation and launched the Maximize B2B restructuring plan. By 2025, ODP had become a different company entirely: a B2B distribution and logistics platform shedding its retail past.

The office supplies industry had undergone structural decline for years, with e-commerce giants like Amazon and mass retailers like Walmart capturing consumer share while corporate spending softened. ODP's traditional model—1,000-plus retail stores selling commodity office products—faced inevitable compression. The company's response was to leverage its most defensible assets: a nationwide supply chain network, deep B2B customer relationships, and procurement expertise. This meant shrinking the retail footprint from 885 stores in Q3 2024 to 822 by Q3 2025 while reallocating capital to adjacency products and third-party logistics. The result was a three-division structure: ODP Business Solutions (B2B distribution), Office Depot (retail), and Veyer (supply chain services). Each played a distinct role in the transformation narrative.

Technology, Products and Strategic Differentiation: The Veyer Advantage and Hospitality Expansion

Veyer represented ODP's most compelling technological moat. As the company's supply chain, distribution, procurement, and global sourcing operation, Veyer possessed capabilities that few third-party logistics providers could match. The division's ability to cost products at the SKU-pick level provided granular visibility that enabled ODP to serve as the lowest-cost provider to its own divisions while attracting external customers. This wasn't theoretical—Veyer's external sales surged 64% in Q3 2025 and 76% year-to-date, driven by new third-party customers for supply chain services. The division generated a 32% increase in third-party EBITDA in Q2 2025, demonstrating that logistics expertise could produce high-margin revenue independent of ODP's core office supplies business.

The hospitality initiative illustrated how ODP deployed this supply chain advantage into new markets. In Q4 2024, ODP secured a landmark agreement with one of the world's largest hotel management companies, positioning it as a preferred OS&E (operating supplies and equipment) distributor for approximately 15,000 potential locations. This opened access to a $16 billion market growing at mid-single digits, where ODP's core strengths in distribution, sourcing, and service reliability created immediate competitive relevance. By Q2 2025, management reported "our biggest day ever in the hospitality business," with sales to hospitality customers rising at a low double-digit percentage. The strategy extended beyond linens and towels—ODP leveraged its adjacency product expertise to become a total solution provider, with traditional office products, cleaning supplies, breakroom items, and technology all delivered from a single truck.

The B2B platform's evolution toward adjacency products further differentiated ODP from pure-play office suppliers. These categories—cleaning, janitorial, breakroom supplies, furniture, and technology—accounted for 45% of ODP Business Solutions revenue in Q2 2025, up from 43% the prior year. This mix shift mattered because adjacency products carried higher margins and created stickier customer relationships. The CoreTrust group purchasing collective, with over 3,500 enterprise members, represented one of the largest B2B contract wins in company history, with onboarding progressing throughout 2025 and expected to drive second-half performance. Together, these moves transformed ODP from an office products company into a comprehensive facilities and workplace solutions provider.

Financial Performance & Segment Dynamics: Cost Discipline Meets Growth Investment

ODP Business Solutions demonstrated the challenges and promise of the B2B pivot. Division sales declined 6% in Q3 2025 to $860 million, a modest improvement from the 8% drop in the prior year period. The slowdown reflected reduced corporate spending on furniture, technology, and supplies amid macroeconomic softness. However, the division's operating income of $14 million in Q3 2025, while down from $28 million in Q3 2024, masked underlying progress. Management emphasized that comparable revenue trends improved approximately 200 basis points both sequentially and year-over-year, driven by new business wins and stronger demand from new customers. The pipeline of recent large wins represented over $500 million in annual spend at full run-rate, with hospitality contributions expected to become material in the second half of 2025.

The Office Depot retail division told a different story—one of managed decline and margin extraction. Sales fell 13% in Q3 2025 to $742 million, primarily due to planned store closures and weaker consumer demand. Yet operating income increased 35% to $31 million, as $27 million in reduced selling, general, and administrative expenses from store closures and cost initiatives more than offset a $19 million gross profit decline. The gross margin rate actually improved 120 basis points despite deleveraging, driven by a 200 basis point improvement in product margin from disciplined pricing and promotion strategy. This performance validated management's approach: rather than fighting for revenue in a structurally challenged market, the retail segment would focus on "spreading cash and margin" while the company harvested cash for B2B investment.

Veyer's financial results provided the clearest evidence of asset value. External sales of $23 million in Q3 2025 represented 64% growth, while year-to-date external sales of $60 million grew 76%. Division operating income increased to $12 million from $9 million in the prior year, driven by higher supply chain services to third parties, improved vendor income, and lower SG&A from the low-cost business model approach. The division's ability to generate third-party EBITDA growth while internal volumes declined proved that Veyer could thrive as an independent logistics provider. This mattered because it created a valuable asset that could be monetized regardless of office supplies demand, fundamentally altering ODP's risk profile.

Consolidated results reflected the transformation's financial impact. Total gross profit decreased 9% to $324 million in Q3 2025, but the gross margin rate held steady at 20%. Selling, general, and administrative expenses fell $30 million in the quarter and $90 million year-to-date, demonstrating the cost discipline embedded in the Optimize for Growth plan. Adjusted free cash flow reached $58 million year-to-date 2025, a more than 160% increase compared to the first half of 2024, driven by working capital improvements and inventory management. Total liquidity of $730 million at September 27, 2025, consisting of $182 million in cash and $548 million of available credit, provided ample resources to fund the transformation.

Outlook, Management Guidance and Execution Risk

Management's commentary throughout 2025 revealed a leadership team focused on execution velocity and capital allocation discipline. The Optimize for Growth restructuring plan, approved in February 2025, targeted total cash costs of $185 million to $230 million over its multi-year duration. By Q3 2025, the company had closed nine retail stores in Q1 and approximately two dozen stores plus three distribution facilities in Q2, while eliminating corporate support structure. These actions weren't one-time cuts but a systematic reduction of fixed costs associated with retail operations, freeing capital for B2B growth investments.

The hospitality segment's trajectory generated particular optimism. Management expected to sign agreements with one or two more major hotel management companies in 2025, building on the initial partnership that covered 15,000 potential locations. The onboarding process faced longer lead times than anticipated due to inventory build and sourcing complexities—"a completely different industry" with supplier relationships requiring new expertise. However, momentum accelerated through 2025, with sales to hospitality customers rising low double-digits in Q2 and the division reporting its "biggest day ever" in the business during Q2. The strategic importance extended beyond hospitality itself, as traditional office product sales to these customers grew at a low double-digit rate, demonstrating the power of becoming a total solution provider.

CoreTrust onboarding progressed well, with management "particularly excited" about the group's 3,500 enterprise members. The pipeline of new business continued growing, and while the B2B segment faced headwinds from macroeconomic softness and the comp impact of a large customer loss from mid-2024, the division's improving comparable trends suggested the bottom had passed. The company expected hospitality to become a more meaningful contributor beginning in the second half of 2025, with sequential improvement anticipated across Dave's B2B business.

The pending Atlas acquisition rendered detailed forward guidance moot, but management's directional outlook throughout 2025 emphasized higher free cash flow generation, stable leverage, and continued B2B traction. The company sharpened its focus on inventory management, which was expected to enhance future cash generation. Capital expenditures were estimated at up to $63 million for 2025, funded through available cash and operating cash flows, with no share repurchases made in Q3 as capital was reprioritized into core growth initiatives.

Risks and Asymmetries: What Could Derail the Value Proposition

Tariff exposure represented a material operational risk that management actively mitigated but could not eliminate. The Veyer Division sourced the majority of products directly and indirectly from China and other Asia-Pacific countries impacted by new tariffs. While management had diversified sourcing away from China for private-label products and implemented strategic pricing initiatives, approximately 43% of inventory remained exposed to tariff impacts. The company invested in forward inventory buys to mitigate risks, creating a short-term working capital headwind that was expected to convert to cash in the first half of 2025. However, additional tariffs announced in April 2025 could have a material impact on results through changes in demand and potentially recessionary macroeconomic conditions.

B2B execution risk centered on the hospitality segment's scaling challenges. Management acknowledged the business was "really early" and learning supplier dynamics with "much longer lead times" than traditional office products. The goal of expanding from 1,000 to 2,000 to 4,000 hotel properties required significant sales talent investment and operational scaling. While early momentum was strong, the segment had not yet reached materiality in financial results, and any slowdown in onboarding could delay the expected second-half 2025 contribution. The CoreTrust onboarding and other large contract wins similarly required flawless execution to realize the $500 million-plus pipeline value.

The retail segment's managed decline, while successful in extracting margin, remained vulnerable to macroeconomic deterioration. Comparable store sales decreased 7% in Q3 2025, an improvement from the prior year's 10% decline but still reflecting weak consumer traffic and demand. Management warned that sales could continue to be adversely impacted by a weaker U.S. economy and increasing competitive pressures. The division's e-commerce penetration had fallen to 25% of sales from 34% in the prior year, suggesting ODP was losing digital share to Amazon and other pure-play e-commerce competitors. If the pace of decline accelerated beyond the planned store closure program, it could consume more management attention and capital than anticipated.

The Atlas acquisition itself introduced transaction risks. The merger agreement included a $37 million termination fee payable under certain circumstances, and the transaction required regulatory approvals that could delay or prevent closing. During the pendency period, restrictions limited ODP's ability to pursue certain business opportunities, strategic transactions, or operational changes without Atlas consent, potentially hampering agility. Business disruptions could arise from uncertainty in retaining key personnel, maintaining customer and supplier relationships, and diverting management attention to integration planning. If the transaction failed to close, ODP would incur substantial advisory and legal costs—approximately $33 million estimated expenses, with $8 million recognized in Q3 2025—without realizing the premium valuation.

Valuation Context: The Private Equity Premium

At $28 per share, the Atlas acquisition price valued ODP at approximately $1 billion enterprise value, representing a 34% premium to the September 22, 2025 closing price. This valuation multiple provided a clear market judgment on the success of ODP's transformation. Pre-announcement, ODP traded at 5.8x EV/EBITDA, 0.13x price-to-sales, and 7.0x price-to-free-cash-flow—multiples that reflected deep skepticism about a declining retailer but ignored the growing value of Veyer and the B2B pivot.

Peer comparisons highlighted the valuation disconnect. Staples, as a private company, had pursued a similar B2B transformation but without the public market discount. Amazon (AMZN) traded at 17.8x EV/EBITDA with 13% revenue growth, while Walmart (WMT) commanded 23.1x EV/EBITDA despite modest 5-6% growth. Veritiv (VRTV), a closer B2B distribution peer, traded at 5.4x EV/EBITDA with similar revenue declines but lacked ODP's retail cash generation and supply chain technology. ODP's valuation had compressed to what CEO Gerry Smith called "a liquidation multiple" of 2.5x, which management argued was "not fair at all" given the balance sheet strength and hospitality momentum.

The balance sheet supported this view. With $730 million in total liquidity against a pre-deal market cap of $843 million, ODP traded near net cash value. Debt-to-equity of 0.96x was manageable, and the company had generated $58 million in adjusted free cash flow year-to-date 2025, a more than 160% improvement. The $800 million asset-based revolving credit facility, maturing in 2029, provided ample runway for the transformation. From a private equity perspective, Atlas could acquire the company at a discount to asset value while benefiting from the B2B growth initiatives and retail cash harvest.

Conclusion: A Transformation Recognized and Rewarded

The ODP Corporation's journey from office supply retailer to B2B logistics platform reached its logical conclusion in the Atlas Holdings acquisition. The company successfully executed a strategy that few legacy retailers have managed: harvesting cash from a declining core business while building new growth engines in adjacent markets. Veyer's supply chain capabilities, the hospitality OS&E expansion, and the CoreTrust GPO win demonstrated that ODP's assets—built over decades in distribution, procurement, and B2B relationships—retained significant strategic value.

The financial results told a clear story. While consolidated revenue declined 9% in Q3 2025, the mix shift toward higher-margin adjacency products, third-party logistics revenue, and disciplined cost management produced improving cash flow and stable gross margins. The retail division's ability to increase operating income 35% while shrinking 13% proved that managed decline could fund transformation. The B2B division's improving comparable trends and massive contract pipeline showed the growth strategy was gaining traction.

For investors, the Atlas acquisition crystallized the value of patience and strategic execution. The $28 per share price represented recognition that ODP's sum-of-parts exceeded its retail multiple, rewarding shareholders who saw past the headline revenue declines to the underlying asset value. The key variables that drove this outcome—Veyer's third-party growth, hospitality scaling success, and retail cost discipline—will now be tested under private ownership. The transformation thesis played out in full view, and the market ultimately agreed that ODP was worth substantially more than its parts.