The ODP Corporation Announces Fourth Quarter and Full Year 2020 Results
Fourth Quarter Revenue of
Low Cost Model Drove Significant Cash Flow with
Continued Progress on B2B Pivot; Industry Veteran Joins ODP to Lead New Digital B2B Commerce Business
Acquired Industry Leading eProcurement Platform and Announced Technology Collaboration in Support of New Digital B2B Commerce Business
|
Consolidated (in millions, except per share amounts) |
4Q20 |
4Q19 |
FY20 |
FY19 |
|
Sales |
|
|
|
|
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Sales change from prior year period |
(9)% |
|
(9)% |
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Operating income (loss) |
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Adjusted operating income (1) |
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Net income (loss) |
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Diluted earnings (loss) per share (2) |
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Adjusted net income (1) |
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Adjusted earnings per share (most dilutive) (2) |
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Adjusted EBITDA (1) |
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Operating Cash Flow |
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Free Cash Flow (3) |
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Adjusted Free Cash Flow (4) |
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Fourth Quarter 2020 Summary(1)
-
Total reported sales of
$2.3 billion , down 9% versus last year -
GAAP operating income of
$21 million and net income of$18 million , or$0.34 per share, versus$74 million and$55 million , respectively in prior year -
Adjusted operating income of
$44 million , down from$92 million in fourth quarter of 2019; and adjusted EBITDA of$89 million , down from$156 million in the fourth quarter of 2019 -
Adjusted net income of
$30 million , or adjusted earnings per share of$0.55 , each down 56% year-over-year -
Operating cash outflow of
$4 million and adjusted free cash outflow of$4 million , versus$152 million and$135 million , respectively in prior year -
$1.7 billion of total available liquidity including$729 million in cash and cash equivalents
Full Year 2020 Summary(1)
-
Total reported sales of
$9.7 billion , down 9% versus last year -
GAAP operating loss of
$252 million and net loss of$319 million , or$(6.05) per share, driven primarily by non-cash asset impairment charges recognized in the second quarter of 2020 -
Adjusted operating income of
$300 million , compared to$367 million in 2019; and adjusted EBITDA of$491 million -
Adjusted net income of
$189 million , or adjusted earnings per share of$3.50 , down 17% and 15%, respectively year-over-year -
Operating cash flow of
$485 million and adjusted free cash flow of$474 million , versus$366 and$310 million , respectively in prior year
“I am extremely proud of our team for delivering solid results and advancing our B2B pivot and digital transformation despite the challenges posed by the pandemic. I want to thank all of our associates for their continued commitment and dedication, not only for driving these results, but also for maintaining their focus on measures to keep our customers and employees safe throughout the COVID-19 outbreak,” said
“The positive dynamics of our ecosystem and low cost model focus helped offset many of the challenges posed by the COVID-19 pandemic. We pivoted our value proposition, reaching customers through leveraging our diverse channels to market and broad product categories. We drove strong performance in cleaning, office technology and workspaces, and personal protective equipment (PPE) categories, partially offsetting challenges in core supply categories which were negatively impacted by business shutdowns and school closures related to the pandemic. Our omni-channel performance was outstanding, experiencing stronger demand during this unusual period, especially for our curb-side pick-up and buy on-line, pick-up in store (BOPIS) offerings. Our digital presence continued to expand, highlighted by a 15% increase in demand through our BSD eCommerce channel. In all, we delivered solid performance throughout the year,” Smith added.
“While we expect that conditions caused by the COVID-19 pandemic will persist for at least the first half of 2021, the actions and investments we have made during 2020 allow us to continue to work to meet our customers’ expanded needs through all channels. We are also maintaining our focus on driving our low-cost model, while working to evolve our B2B platform to expand into higher growth and higher value market categories. We’ve made significant progress on our B2B pivot and digital transformation, recently enhancing our senior team and accelerating our technology development by adding an industry-leading eProcurement software platform. This component of our digital transformation combined with our valuable physical asset base, has been recognized by one of the leading technology companies in the world, Microsoft, whom we are collaborating with to transform how businesses buy and sell in the over
Consolidated Results
Reported (GAAP) Results
Total reported sales for the fourth quarter of 2020 were
|
Sales Breakdown (in millions) |
4Q20 |
4Q19 |
FY20 |
FY19 |
|
Product sales |
|
|
|
|
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Product sales change from prior year |
(7)% |
|
(7)% |
|
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Service revenues |
|
|
|
|
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Service revenues change from prior year |
(20)% |
|
(17)% |
|
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Total sales |
|
|
|
|
The Company reported operating income of
Total reported sales for the full year 2020 period were
Adjusted (non-GAAP) Results (1)
Adjusted results for the fourth quarter of 2020 exclude charges and credits totaling
-
Fourth quarter of 2020 adjusted EBITDA was
$89 million compared to$156 million in the prior year period. This included adjusted depreciation and amortization(5) of$45 million and$50 million in the fourth quarters of 2020 and 2019, respectively. -
Fourth quarter of 2020 adjusted operating income was
$44 million compared to$92 million in the fourth quarter of 2019, including the impacts related to the COVID-19 pandemic. -
Fourth quarter of 2020 adjusted net income was
$30 million , or$0.55 per diluted share, compared to$68 million , or$1.24 per diluted share, in the fourth quarter of 2019.
Full year 2020 adjusted operating income was
Fourth Quarter Division Results
Business Solutions Division (BSD)
-
Reported sales were
$1.1 billion in the fourth quarter of 2020, down 10% compared to the same period last year. Sales performance was impacted by conditions caused by the COVID-19 outbreak, which impacted schools and business operations - Demand in our eCommerce channel increased 15% with growth in certain adjacency product sales, which comprised 45% of total BSD revenues in the quarter
-
Operating income was
$18 million in the fourth quarter of 2020 compared to$69 million in the prior year period
Retail Division
-
Reported sales were
$951 million in the fourth quarter of 2020, down 6% versus the prior year period. Planned closures of underperforming stores drove the reported decline with 153 fewer retail outlets at the end of the fourth quarter as compared to the prior year. The Company closed 90 stores in the quarter and had 1,154 stores at year end - Partially offsetting these impacts were increased demand for cleaning and breakroom supplies as well as a 50% increase in our BOPIS offering
-
Operating income was
$50 million in the fourth quarter of 2020, up 47% over the same period last year. As a percentage of sales, this performance reflects an approximate 190 basis point margin improvement
CompuCom Division
-
Reported sales were
$207 million in the fourth quarter of 2020, down 13% compared to the prior year period. The year-over-year decrease was due to lower product sales and services volumes related to the COVID-19 outbreak -
Operating income was
$4 million in the fourth quarter of 2020, down from$9 million in the prior year period. Business Acceleration Program (BAP) cost efficiency measures helped to partially offset disruptions caused by the COVID-19 outbreak - The Company’s Board of Directors recently announced that as a result of a business review of CompuCom, management has initiated a process to explore a value-maximizing sale of its CompuCom Division to maximize CompuCom’s full potential and drive forward its future value and success
B2B Pivot and Digital Transformation Progress
As a primary component of its strategy to drive growth in higher value industry segments, the Company has made significant foundational progress on its B2B pivot and digital transformation initiatives, including the development of an integrated digital source-to-settle business platform. Leveraging this initiative with its deep business relationships and supply chain capabilities, positions ODP to offer a fully integrated B2B platform that will positively impact the business sourcing and procurement industry and allow it to fully participate in the
B2B Industry Veteran Joins
The company announced that B2B industry veteran,
Acquired Leading eProcurement Technology Software Platform
Significantly advancing its technology development, in the first quarter of 2021, the Company acquired
Collaboration with Microsoft
“We are excited about the future of our business and the initial progress we have made on our digital transformation,” Smith continued. “Leveraging the assets that we have put in place over the last several years, combined with our new digital platform, have us well positioned to pursue growth in much larger and higher value market segments, while providing better service for our existing customers. As B2B purchasing rapidly moves online, procurement organizations are embracing digital sourcing and purchasing, while suppliers require B2B-grade eCommerce technology and nimble supply chains to remain competitive. As a world-class B2B supply chain and emerging technology platform, ODP is perfectly positioned to drive value and help customers drive growth and efficiency. We have built a team that includes some of the most respected B2B and technology veterans in the industry, accelerated our technology stack development, and are collaborating with one of the most widely respected technology companies in the world, Microsoft. The progress we have made places us in an excellent position to execute our B2B pivot, creating value for shareholders.”
Balance Sheet and Cash Flow
As of
For the fourth quarter of 2020, cash used in operating activities was
Capital expenditures in the quarter were
2021 Commentary
“Despite the challenges caused by COVID, we drove solid results in 2020 and our team is committed to unlocking the value of our asset base by driving our digital transformation and building upon our B2B platform for the benefit of all of our stakeholders. While we expect that the conditions created by the COVID-19 pandemic will persist for the first half of the year, we expect to continue leveraging our diverse channels to market and expanded value proposition to meet our customers’ needs. We will continue to execute our Maximize B2B Restructuring Plan optimizing our retail footprint, invest in top-line revenue growth in BSD and leverage our omni-channel customer base. Additionally, we will continue to invest in our digital platform and B2B pivot, including in our technology development and supply chain capabilities,” said Smith.
Because of the continuing challenges posed by current market conditions and recent events, including the public proposal made by
|
(1) |
As presented throughout this release, adjusted results represent non-GAAP financial measures and exclude charges or credits not indicative of core operations and the tax effect of these items, which may include but not be limited to merger integration, restructuring, acquisition costs, asset impairments, loss on extinguishment and modification of debt, and executive transition costs. Reconciliations from GAAP to non-GAAP financial measures can be found in this release as well as on the Investor Relations website at investor.theodpcorp.com. |
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(2) |
After obtaining approval of the Company’s shareholders on |
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(3) |
As used in this release, Free Cash Flow is defined as cash flows from operating activities less capital expenditures. Free Cash Flow is a non-GAAP financial measure and reconciliations from GAAP financial measures can be found in this release. Reconciliations from GAAP to non-GAAP financial measures can be found in this release as well as on the Investor Relations website at investor.theodpcorp.com. |
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(4) |
As used in this release, Adjusted Free Cash Flow is defined as Free Cash Flow excluding cash charges associated with the Company’s Maximize B2B Restructuring Plan and its Business Acceleration Program and the |
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(5) |
Adjusted depreciation and amortization each represents a non-GAAP financial measure and excludes accelerated depreciation caused by updating the salvage value and shortening the useful life of depreciable fixed assets to coincide with planned store closures under an approved restructuring plan, but only if impairment is not present. Reconciliations from GAAP to non-GAAP financial measures can be found in this release as well as on the Investor Relations website at investor.theodpcorp.com. |
About
FORWARD LOOKING STATEMENTS
This communication may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements or disclosures may discuss goals, intentions and expectations as to future trends, plans, events, results of operations, cash flow or financial condition, the potential impacts on our business due to the unknown severity and duration of the COVID-19 outbreak, or state other information relating to, among other things, the Company, based on current beliefs and assumptions made by, and information currently available to, management. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “plan,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “outlook,” “intend,” “may,” “possible,” “potential,” “predict,” “project,” “propose” or other similar words, phrases or expressions, or other variations of such words. These forward-looking statements are subject to various risks and uncertainties, many of which are outside of the Company’s control. There can be no assurances that the Company will realize these expectations or that these beliefs will prove correct, and therefore investors and stakeholders should not place undue reliance on such statements.
Factors that could cause actual results to differ materially from those in the forward-looking statements include, among other things, highly competitive office products market and failure to differentiate the Company from other office supply resellers or respond to decline in general office supplies sales or to shifting consumer demands; competitive pressures on the Company’s sales and pricing; the adverse effects of an unsolicited tender offer on our business, operating results or financial condition; the risk that the Company is unable to transform the business into a service-driven, B2B platform that such a strategy will not result in the benefits anticipated; the risk that the Company may not be able to realize the anticipated benefits of acquisitions due to unforeseen liabilities, future capital expenditures, expenses, indebtedness and the unanticipated loss of key customers or the inability to achieve expected revenues, synergies, cost savings or financial performance; the risk that the Company is unable to successfully maintain a relevant omni-channel experience for its customers; the risk that the Company is unable to execute both the Business Acceleration Program and the Maximize B2B Restructuring Plan successfully or that such program and plan will not result in the benefits anticipated; the risk that the Company will not be successful in maximizing the full potential of its CompuCom Division; failure to effectively manage the Company’s real estate portfolio; loss of business with government entities, purchasing consortiums, and sole- or limited- source distribution arrangements; failure to attract and retain qualified personnel, including employees in stores, service centers, distribution centers, field and corporate offices and executive management, and the inability to keep supply of skills and resources in balance with customer demand; failure to execute effective advertising efforts and maintain the Company’s reputation and brand at a high level; disruptions in computer systems, including delivery of technology services; breach of information technology systems affecting reputation, business partner and customer relationships and operations and resulting in high costs; unanticipated downturns in business relationships with customers or terms with the suppliers, third-party vendors and business partners; disruption of global sourcing activities, evolving foreign trade policy (including tariffs imposed on certain foreign made goods); exclusive
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CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) |
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13 Weeks Ended |
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52 Weeks Ended |
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2020 |
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2019 |
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2020 |
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2019 |
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(Unaudited) |
|
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Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
1,971 |
|
|
$ |
2,113 |
|
|
$ |
8,374 |
|
|
$ |
9,034 |
|
|
Services |
|
|
317 |
|
|
|
395 |
|
|
|
1,336 |
|
|
|
1,613 |
|
|
Total sales |
|
|
2,288 |
|
|
|
2,508 |
|
|
|
9,710 |
|
|
|
10,647 |
|
|
Cost of goods sold and occupancy costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
|
1,569 |
|
|
|
1,676 |
|
|
|
6,655 |
|
|
|
7,088 |
|
|
Services |
|
|
222 |
|
|
|
261 |
|
|
|
923 |
|
|
|
1,095 |
|
|
Total cost of goods sold and occupancy costs |
|
|
1,791 |
|
|
|
1,937 |
|
|
|
7,578 |
|
|
|
8,183 |
|
|
Gross profit |
|
|
497 |
|
|
|
571 |
|
|
|
2,132 |
|
|
|
2,464 |
|
|
Selling, general and administrative expenses |
|
|
453 |
|
|
|
480 |
|
|
|
1,832 |
|
|
|
2,101 |
|
|
Asset impairments |
|
|
8 |
|
|
|
6 |
|
|
|
431 |
|
|
|
56 |
|
|
Merger and restructuring expenses, net |
|
|
15 |
|
|
|
11 |
|
|
|
121 |
|
|
|
116 |
|
|
Operating income (loss) |
|
|
21 |
|
|
|
74 |
|
|
|
(252 |
) |
|
|
191 |
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
— |
|
|
|
6 |
|
|
|
4 |
|
|
|
23 |
|
|
Interest expense |
|
|
(7 |
) |
|
|
(21 |
) |
|
|
(42 |
) |
|
|
(89 |
) |
|
Loss on extinguishment and modification of debt |
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
|
Other income, net |
|
|
1 |
|
|
|
14 |
|
|
|
7 |
|
|
|
21 |
|
|
Income (loss) before income taxes |
|
|
15 |
|
|
|
73 |
|
|
|
(295 |
) |
|
|
146 |
|
|
Income tax expense (benefit) |
|
|
(3 |
) |
|
|
18 |
|
|
|
24 |
|
|
|
47 |
|
|
Net income (loss) |
|
$ |
18 |
|
|
$ |
55 |
|
|
$ |
(319 |
) |
|
$ |
99 |
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.35 |
|
|
$ |
1.01 |
|
|
$ |
(6.05 |
) |
|
$ |
1.82 |
|
|
Diluted |
|
$ |
0.34 |
|
|
$ |
1.00 |
|
|
$ |
(6.05 |
) |
|
$ |
1.80 |
|
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CONDENSED CONSOLIDATED BALANCE SHEETS (In millions, except shares and par value) |
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2020 |
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2019 |
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ASSETS |
|
|
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Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
729 |
|
|
$ |
698 |
|
|
Receivables, net |
|
|
631 |
|
|
|
823 |
|
|
Inventories |
|
|
930 |
|
|
|
1,032 |
|
|
Prepaid expenses and other current assets |
|
|
65 |
|
|
|
75 |
|
|
Timber notes receivable |
|
|
— |
|
|
|
819 |
|
|
Total current assets |
|
|
2,355 |
|
|
|
3,447 |
|
|
Property and equipment, net |
|
|
576 |
|
|
|
679 |
|
|
Operating lease right-of-use assets |
|
|
1,170 |
|
|
|
1,413 |
|
|
|
|
|
609 |
|
|
|
944 |
|
|
Other intangible assets, net |
|
|
357 |
|
|
|
388 |
|
|
Deferred income taxes |
|
|
162 |
|
|
|
183 |
|
|
Other assets |
|
|
329 |
|
|
|
257 |
|
|
Total assets |
|
$ |
5,558 |
|
|
$ |
7,311 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Trade accounts payable |
|
$ |
919 |
|
|
$ |
1,026 |
|
|
Accrued expenses and other current liabilities |
|
|
1,138 |
|
|
|
1,219 |
|
|
Income taxes payable |
|
|
12 |
|
|
|
8 |
|
|
Short-term borrowings and current maturities of long-term debt |
|
|
24 |
|
|
|
106 |
|
|
Non-recourse debt |
|
|
— |
|
|
|
735 |
|
|
Total current liabilities |
|
|
2,093 |
|
|
|
3,094 |
|
|
Deferred income taxes and other long-term liabilities |
|
|
197 |
|
|
|
176 |
|
|
Pension and postretirement obligations, net |
|
|
43 |
|
|
|
85 |
|
|
Long-term debt, net of current maturities |
|
|
354 |
|
|
|
575 |
|
|
Operating lease liabilities |
|
|
991 |
|
|
|
1,208 |
|
|
Total liabilities |
|
|
3,678 |
|
|
|
5,138 |
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Common stock — authorized 80,000,000 shares of
shares — 62,551,255 at
and 53,518,232 at |
|
|
1 |
|
|
|
1 |
|
|
Additional paid-in capital |
|
|
2,675 |
|
|
|
2,652 |
|
|
Accumulated other comprehensive loss |
|
|
(32 |
) |
|
|
(66 |
) |
|
Accumulated deficit |
|
|
(409 |
) |
|
|
(89 |
) |
|
shares at |
|
|
(355 |
) |
|
|
(325 |
) |
|
Total stockholders’ equity |
|
|
1,880 |
|
|
|
2,173 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
5,558 |
|
|
$ |
7,311 |
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) |
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|
|
|
2020 |
|
|
2019 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(319 |
) |
|
$ |
99 |
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
189 |
|
|
|
204 |
|
|
Amortization of debt discount and issuance costs |
|
|
3 |
|
|
|
8 |
|
|
Charges for losses on receivables and inventories |
|
|
36 |
|
|
|
26 |
|
|
Asset impairments |
|
|
431 |
|
|
|
56 |
|
|
(Gain) loss on disposition of assets, net |
|
|
5 |
|
|
|
(23 |
) |
|
Loss on extinguishment and modification of debt |
|
|
12 |
|
|
|
— |
|
|
Compensation expense for share-based payments |
|
|
41 |
|
|
|
33 |
|
|
Deferred income taxes and deferred tax asset valuation allowances |
|
|
9 |
|
|
|
100 |
|
|
Contingent consideration payments in excess of acquisition-date liability |
|
|
(2 |
) |
|
|
(11 |
) |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Decrease in receivables |
|
|
191 |
|
|
|
63 |
|
|
Decrease in inventories |
|
|
84 |
|
|
|
19 |
|
|
Net decrease in prepaid expenses, operating lease right-of-use assets, and other assets |
|
|
317 |
|
|
|
321 |
|
|
Net decrease in trade accounts payable, accrued expenses, operating lease liabilities, and other current and other long-term liabilities |
|
|
(513 |
) |
|
|
(532 |
) |
|
Other operating activities |
|
|
1 |
|
|
|
3 |
|
|
Total adjustments |
|
|
804 |
|
|
|
267 |
|
|
Net cash provided by operating activities |
|
|
485 |
|
|
|
366 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(68 |
) |
|
|
(150 |
) |
|
Businesses acquired, net of cash acquired |
|
|
(30 |
) |
|
|
(22 |
) |
|
Proceeds from collection of notes receivable |
|
|
818 |
|
|
|
— |
|
|
Proceeds from disposition of assets |
|
|
3 |
|
|
|
50 |
|
|
Other investing activities |
|
|
13 |
|
|
|
3 |
|
|
Net cash provided by (used in) investing activities |
|
|
736 |
|
|
|
(119 |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Net payments on long and short-term borrowings |
|
|
(341 |
) |
|
|
(98 |
) |
|
Debt retirement |
|
|
(1,196 |
) |
|
|
(735 |
) |
|
Debt issuance |
|
|
400 |
|
|
|
736 |
|
|
Cash dividends on common stock |
|
|
(13 |
) |
|
|
(55 |
) |
|
Share purchases for taxes, net of proceeds from employee share-based transactions |
|
|
(5 |
) |
|
|
(9 |
) |
|
Repurchase of common stock for treasury |
|
|
(30 |
) |
|
|
(40 |
) |
|
Contingent consideration payments up to amount of acquisition-date liability |
|
|
(1 |
) |
|
|
(12 |
) |
|
Other financing activities |
|
|
(7 |
) |
|
|
1 |
|
|
Net cash used in financing activities |
|
|
(1,193 |
) |
|
|
(212 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
1 |
|
|
|
5 |
|
|
Net increase in cash, cash equivalents and restricted cash |
|
|
29 |
|
|
|
40 |
|
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
700 |
|
|
|
660 |
|
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
729 |
|
|
$ |
700 |
|
|
Supplemental information |
|
|
|
|
|
|
|
|
|
Cash interest paid, net of amounts capitalized and Timber notes/Non-recourse debt |
|
$ |
40 |
|
|
$ |
61 |
|
|
Cash taxes refunded, net |
|
|
(14 |
) |
|
|
(43 |
) |
|
Right-of-use assets obtained in exchange for new finance lease liabilities |
|
|
29 |
|
|
|
27 |
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
126 |
|
|
|
338 |
|
|
BUSINESS UNIT PERFORMANCE (In millions) |
||||
|
Business Solutions Division (in millions) |
4Q20 |
4Q19 |
FY20 |
FY19 |
|
Sales |
|
|
|
|
|
Sales change from prior year |
(10)% |
|
(11)% |
|
|
Division operating income |
|
|
|
|
|
Division operating income margin |
1.6% |
5.5% |
2.5% |
5.1% |
BSD year-over-year sales performance was impacted by conditions caused by the COVID-19 outbreak, negatively impacting sales primarily in the Company’s contract channel as the operations of many businesses were interrupted and schools remained closed. The Company utilized diverse channels and a broader product portfolio to meet customer needs. Demand through its eCommerce channel grew by 15%. Adjacency categories include cleaning and breakroom, personal protective equipment (PPE), technology, furniture, and copy and print, comprised 45% of total BSD revenues in the quarter. BSD operating income was impacted by lower sales volume related to the effects of the COVID-19 pandemic and product mix, partially offset by a reduction in selling, general and administrative expenses achieved through our Business Acceleration Program.
|
Retail Division (in millions) |
4Q20 |
4Q19 |
FY20 |
FY19 |
|
Sales |
|
|
|
|
|
Sales change from prior year |
(6)% |
|
(4)% |
|
|
Division operating income |
|
|
|
|
|
Division operating income margin |
5.3% |
3.4% |
6.6% |
4.4% |
The Retail Division reported sales were down 6% versus the prior year period related to planned closures of underperforming stores with 153 fewer retail outlets at the end of the fourth quarter as compared to the prior year. Partially offsetting these impacts were increased demand for cleaning and breakroom supplies as well as a 50% increase in our buy online, pick up in store (BOPIS) offering. Additionally, comparable store retail sales were up slightly in 2020 versus 2019. Retail Division operating income was up 47% over the same period last year and reflects a 190 basis point margin improvement. The increase in operating income versus the prior year was largely related to strong demand for cleaning/breakroom categories, coupled with lower operating lease costs and lower SG&A from cost savings initiatives, and improvements in distribution and inventory management costs.
|
CompuCom Division (in millions) |
4Q20 |
4Q19 |
FY20 |
FY19 |
|
Sales |
|
|
|
|
|
Sales change from prior year |
(13)% |
|
(14)% |
|
|
Division operating income (loss) |
|
|
|
|
|
Division operating income (loss) margin |
1.9% |
3.8% |
1.6% |
(0.2)% |
The CompuCom Division reported sales decrease was due to lower product sales and services volumes, and customer imposed project delays related to the COVID-19 health crisis which impacted business operations of certain customers. The CompuCom Division operating income was
|
|
|
GAAP to Non-GAAP Reconciliations |
|
(Unaudited) |
We report our results in accordance with accounting principles generally accepted in
Our measurement of these non-GAAP financial measures may be different from similarly titled financial measures used by others and therefore may not be comparable. These non-GAAP financial measures should not be considered superior to the GAAP measures, but only to clarify some information and assist the reader. We have included reconciliations of this information to the most comparable GAAP measures in the tables included within this material.
Free cash flow is a non-GAAP measure, which we define as cash flows from operating activities less capital expenditures. We believe that free cash flow is an important indicator that provides additional perspective on our ability to generate cash to fund our strategy and expand our distribution network. Adjusted free cash flow is also a non-GAAP measure, which we define as free cash flow excluding cash charges associated with the Company’s Maximize B2B Restructuring Plan and its Business Acceleration Program and the
(In millions, except per share amounts)
|
Q4 2020 |
|
Reported (GAAP) |
|
|
% of Sales |
|
|
Less: Charges & Credits |
|
|
Adjusted (Non-GAAP) |
|
|
% of Sales |
|
|||||
|
Assets impairments |
|
$ |
8 |
|
|
|
0.3 |
% |
|
$ |
8 |
|
|
$ |
— |
|
|
|
— |
% |
|
Merger and restructuring expenses, net |
|
$ |
15 |
|
|
|
0.7 |
% |
|
$ |
15 |
|
|
$ |
— |
|
|
|
— |
% |
|
Operating income |
|
$ |
21 |
|
|
|
0.9 |
% |
|
$ |
(23 |
) |
|
$ |
44 |
|
(7) |
|
1.9 |
% |
|
Income tax expense |
|
$ |
(3 |
) |
|
|
(0.1 |
)% |
|
$ |
(11 |
) |
|
$ |
8 |
|
(9) |
|
0.3 |
% |
|
Net income |
|
$ |
18 |
|
|
|
0.8 |
% |
|
$ |
(12 |
) |
|
$ |
30 |
|
(10) |
|
1.3 |
% |
|
Earnings per share (most dilutive) |
|
$ |
0.34 |
|
|
|
|
|
|
$ |
(0.21 |
) |
|
$ |
0.55 |
|
(10) |
|
|
|
|
Depreciation and amortization |
|
$ |
46 |
|
|
|
2.0 |
% |
|
$ |
1 |
|
|
$ |
45 |
|
(11) |
|
2.0 |
% |
|
Q4 2019 |
|
Reported (GAAP) |
|
|
% of Sales |
|
|
Less: Charges & Credits |
|
|
Adjusted (Non-GAAP) |
|
|
% of Sales |
|
|||||
|
Selling, general and administrative expenses |
|
$ |
480 |
|
|
|
19.1 |
% |
|
$ |
1 |
|
|
$ |
479 |
|
(6) |
|
19.1 |
% |
|
Assets impairments |
|
$ |
6 |
|
|
|
0.2 |
% |
|
$ |
6 |
|
|
$ |
— |
|
|
|
— |
% |
|
Merger and restructuring expenses, net |
|
$ |
11 |
|
|
|
0.4 |
% |
|
$ |
11 |
|
|
$ |
— |
|
|
|
— |
% |
|
Operating income |
|
$ |
74 |
|
|
|
3.0 |
% |
|
$ |
(18 |
) |
|
$ |
92 |
|
(7) |
|
3.7 |
% |
|
Income tax expense |
|
$ |
18 |
|
|
|
0.7 |
% |
|
$ |
(4 |
) |
|
$ |
22 |
|
(9) |
|
0.9 |
% |
|
Net income |
|
$ |
55 |
|
|
|
2.2 |
% |
|
$ |
(14 |
) |
|
$ |
68 |
|
(10) |
|
2.7 |
% |
|
Earnings per share (most dilutive) |
|
$ |
1.00 |
|
|
|
|
|
|
$ |
(0.24 |
) |
|
$ |
1.24 |
|
(10) |
|
|
|
|
GAAP to Non-GAAP Reconciliations (Unaudited) |
||||||||||||||||||||
|
2020 |
|
Reported (GAAP) |
|
|
% of Sales |
|
|
Less: Charges & Credits |
|
|
Adjusted (Non-GAAP) |
|
|
% of Sales |
|
|||||
|
Assets impairments |
|
$ |
431 |
|
|
|
4.4 |
% |
|
$ |
431 |
|
|
$ |
— |
|
|
|
— |
% |
|
Merger and restructuring expenses, net |
|
$ |
121 |
|
|
|
1.2 |
% |
|
$ |
121 |
|
|
$ |
— |
|
|
|
— |
% |
|
Operating income (loss) |
|
$ |
(252 |
) |
|
|
(2.6 |
)% |
|
$ |
(552 |
) |
|
$ |
300 |
|
(7) |
|
3.1 |
% |
|
Loss on extinguishment and modification of debt |
|
$ |
(12 |
) |
|
|
(0.1 |
)% |
|
$ |
(12 |
) |
|
$ |
— |
|
|
|
— |
% |
|
Other income, net |
|
$ |
7 |
|
|
|
0.1 |
% |
|
$ |
1 |
|
|
$ |
6 |
|
(8) |
|
0.1 |
% |
|
Income tax expense |
|
$ |
24 |
|
|
|
0.2 |
% |
|
$ |
(55 |
) |
|
$ |
79 |
|
(9) |
|
0.8 |
% |
|
Net income (loss) |
|
$ |
(319 |
) |
|
|
(3.3 |
)% |
|
$ |
(508 |
) |
|
$ |
189 |
|
(10) |
|
1.9 |
% |
|
Earnings (loss) per share (most dilutive) |
|
$ |
(6.05 |
) |
|
|
|
|
|
$ |
(9.55 |
) |
|
$ |
3.50 |
|
(10) |
|
|
|
|
Depreciation and amortization |
|
$ |
189 |
|
|
|
1.9 |
% |
|
$ |
4 |
|
|
$ |
185 |
|
(11) |
|
1.9 |
% |
|
2019 |
|
Reported (GAAP) |
|
|
% of Sales |
|
|
Less: Charges & Credits |
|
|
Adjusted (Non-GAAP) |
|
|
% of Sales |
|
|||||
|
Selling, general and administrative expenses |
|
$ |
2,101 |
|
|
|
19.7 |
% |
|
$ |
3 |
|
|
$ |
2,097 |
|
(6) |
|
19.7 |
% |
|
Assets impairments |
|
$ |
56 |
|
|
|
0.5 |
% |
|
$ |
56 |
|
|
$ |
— |
|
|
|
— |
% |
|
Merger and restructuring expenses, net |
|
$ |
116 |
|
|
|
1.1 |
% |
|
$ |
116 |
|
|
$ |
— |
|
|
|
— |
% |
|
Operating income |
|
$ |
191 |
|
|
|
1.8 |
% |
|
$ |
(175 |
) |
|
$ |
367 |
|
(7) |
|
3.4 |
% |
|
Income tax expense |
|
$ |
47 |
|
|
|
0.4 |
% |
|
$ |
(46 |
) |
|
$ |
93 |
|
(9) |
|
0.9 |
% |
|
Net income |
|
$ |
99 |
|
|
|
0.9 |
% |
|
$ |
(129 |
) |
|
$ |
228 |
|
(10) |
|
2.1 |
% |
|
Earnings per share (most dilutive) |
|
$ |
1.80 |
|
|
|
|
|
|
$ |
(2.33 |
) |
|
$ |
4.13 |
|
(10) |
|
|
|
|
Depreciation and amortization |
|
$ |
204 |
|
|
|
1.9 |
% |
|
$ |
2 |
|
|
$ |
202 |
|
(11) |
|
1.9 |
% |
|
|
|
13 Weeks Ended |
|
|
52 Weeks Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Adjusted EBITDA: |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Net income (loss) |
|
$ |
18 |
|
|
$ |
55 |
|
|
$ |
(319 |
) |
|
$ |
99 |
|
|
Income tax expense (benefit) |
|
|
(3 |
) |
|
|
18 |
|
|
|
24 |
|
|
|
47 |
|
|
Income (loss) before income taxes |
|
|
15 |
|
|
|
73 |
|
|
|
(295 |
) |
|
|
146 |
|
|
Add (subtract) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
— |
|
|
|
(6 |
) |
|
|
(4 |
) |
|
|
(23 |
) |
|
Interest expense |
|
|
7 |
|
|
|
21 |
|
|
|
42 |
|
|
|
89 |
|
|
Adjusted depreciation and amortization (11) |
|
|
45 |
|
|
|
50 |
|
|
|
185 |
|
|
|
202 |
|
|
Charges and credits, pretax (12) |
|
|
23 |
|
|
|
18 |
|
|
|
563 |
|
|
|
175 |
|
|
Adjusted EBITDA |
|
$ |
89 |
|
|
$ |
156 |
|
|
$ |
491 |
|
|
$ |
590 |
|
| Amounts may not foot due to rounding. The sum of the quarterly amounts may not equal the reported amounts for the year due to rounding. | ||
|
(6) |
Adjusted selling, general and administrative expenses for the fourth quarter and year-to-date 2019 exclude charges for executive transition costs of |
|
|
(7) |
Adjusted operating income for all periods presented herein exclude merger and restructuring expenses, net, asset impairments (if any) and executive transition costs (if any). |
|
|
(8) |
Adjusted other income, net for year-to-date 2020 excludes credits for Indemnification asset adjustments of |
|
|
(9) |
Adjusted income tax expense for all periods presented herein exclude the tax effect of the charges or credits not indicative of core operations as described in the preceding notes. |
|
|
(10) |
Adjusted net income and adjusted earnings per share (most dilutive) for all periods presented exclude merger and restructuring expenses, net, asset impairments (if any), executive transition costs (if any), loss on extinguishment and modification of debt (if any), indemnification asset adjustments (if any), and exclude the tax effect of the charges or credits not indicative of core operations. |
|
|
(11) |
Adjusted depreciation and amortization for all periods presented herein exclude accelerated depreciation caused by updating the salvage value and shortening the useful life of depreciable fixed assets to coincide with the planned store closures under an approved restructuring plan, but only if impairment is not present. |
|
|
(12) |
Charges and credits, pretax for all periods presented include merger and restructuring expenses, net, asset impairments (if any), executive transition costs (if any), loss on extinguishment and modification of debt (if any) and indemnification asset adjustments (if any). |
|
|
GAAP to Non-GAAP Reconciliations (Unaudited) |
||||||||||||||||
|
|
|
13 Weeks Ended |
|
|
52 Weeks Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Free cash flow |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Net cash provided by (used in) operating activities |
|
$ |
(4 |
) |
|
$ |
152 |
|
|
$ |
485 |
|
|
$ |
366 |
|
|
Capital expenditures |
|
|
(14 |
) |
|
|
(27 |
) |
|
|
(68 |
) |
|
|
(150 |
) |
|
Free cash flow |
|
|
(18 |
) |
|
|
125 |
|
|
|
417 |
|
|
|
216 |
|
|
Adjustments for certain cash charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximize B2B Restructuring Plan |
|
|
12 |
|
|
|
— |
|
|
|
28 |
|
|
|
— |
|
|
Business Acceleration Program |
|
|
2 |
|
|
|
10 |
|
|
|
29 |
|
|
|
69 |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
Adjusted free cash flow |
|
$ |
(4 |
) |
|
$ |
135 |
|
|
$ |
474 |
|
|
$ |
310 |
|
|
Amounts may not foot due to rounding. The sum of the quarterly amounts may not equal the reported amounts for the year due to rounding. |
|
Store Statistics (Unaudited) |
||||||||||||
|
|
|
Q4 |
|
|
Q4 |
|
|
Full Year |
|
|||
|
|
|
2019 |
|
|
2020 |
|
|
2020 |
|
|||
|
Retail Division: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores opened |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stores closed |
|
|
10 |
|
|
|
90 |
|
|
|
153 |
|
|
Total retail stores ( |
|
|
1,307 |
|
|
|
1,154 |
|
|
|
— |
|
|
Total square footage (in millions) |
|
|
29.1 |
|
|
|
25.5 |
|
|
|
— |
|
|
Average square footage per store (in thousands) |
|
|
22.3 |
|
|
|
22.1 |
|
|
|
— |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20210224005316/en/
Investor Relations
561-438-4629
Tim.Perrott@officedepot.com
Media Relations
561-438-1594
Danny.Jovic@officedepot.com
Source: