ODP Corp. CFO argues company's valuation hurt by investor misperception

Office Depot store in Fairfax county, Virginia shop exterior entrance with sign, logo, doors , couple walking out

ablokhin

Anthony Scaglione, chief financial officer of ODP Corp., which owns the Office Depot chain of retail stores as well as three other business segments, is tired of investors’ apparent focus on its retail operations.

“We trade at less than 5x EBITDA and we have no debt,” Scaglione told Seeking Alpha in an interview at the NobleCon19 Conference in Boca Rotan, Florida on Monday. “When you look at it through that lens, you say you have a retail business that should trade like a retailer; call it 3x to 4x. Then you have a B2B business that should trade in the high single digits. Then you have a 3PL logistics business that should trade either a high single digit or low double-digit. When you start to look at it through that lens, you start to unlock value and question why the consolidated business trades at 4. It doesn’t make sense.”

ODP Corp. (NASDAQ:ODP) is pruning down its retail store presence from the current ~930 stores and is targeting reducing its store count to 800 to 900 stores, Scaglione, who joined ODP in 2020, explained.

“It’s a high EBITDA, high cash flow conversion business,” Scaglione said. “It’s done relatively well, but it’s in a declining end market. 98% of our stores today are four-wall cash flow positive. So you get a sense that we are not dealing with a lot of losing stores that are overhang and cash drains.”

While ODP (ODP) has publicly explored selling the retailing business and has received interest from competitor Staples in the past, it’s not something the company is focusing on now.

“Our board has exhibited through the last three years I’ve been here and even historically an open mind as it relates to shareholder value, whatever that may be,” Scaglione said. “And selling retail or merging retail is always something they would look at if it’s in the best interest of shareholders. But as we sit here today we are four business units.”

ODP’s four business units cost of its retail operations, which generate about $4 billion in annual revenue, its B2B unit which also about $4 billion in sales, its Veyer supply chain/logistics segment and Varis, a digital procurement technology platform.

“Where are going to find a a company that trades at less than 10x PE, less than 5x EBITDA,” Staglione asked. “You’re not. Retail yes. Right now it’s just one of four legs of the stool.”

ODP has been working to return capital to shareholders and unveiled a $1 billion share repurchase program last November that runs through the end of 2025. Through the end of Q3, the company had repurchased 9 million shares for about $420 million.

“As we deploy the capital by the end of 2025, just do the simple math, you buy more than half the company,” Staglione told Seeking Alpha. “So that’s a pretty compelling mathematical process where you say that last share standing is going to be worth a lot if we execute, which frustrates us because we’re stuck in that $45” share price.

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