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Bear of the Day: Office Depot (ODP)

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Office Depot (ODP - Free Report) , now known as The ODP Corporation, is one of the leading providers of business services, products and digital workplace technology solutions around the globe. On July 1, the company went through a reorganization, and created a holding company to help organize all of its various businesses.

Q2 Earnings Disappoint

Shares of ODP fell as much as 10% after the company reported Q2 earnings on August 5.

Revenue fell 17% year-over-year to $2.2 billion, while operating income fell to a huge $439 million loss for the quarter (compared to a $24 million loss in Q2 2019).

Stripping out all of the one-time charges, ODP’s adjusted loss came to $0.07 per share; Wall Street had been anticipating a profit of $0.08 a share.

But, the company did end the quarter with $1.5 billion in total available liquidity, including $762 million in cash.

“While the business environment in North America is still recovering, our strong balance sheet and asset base provides an excellent foundation to navigate the challenges and pursue profitable growth,” said CEO Gerry Smith in the earnings release.

Bottom Line

ODP is now a Zacks Rank #5 (Strong Sell).

One analyst cut their full year earnings outlook over the past 60 days, and the consensus estimate has fallen 66 cents to $3.79 per share; earnings are expected to fall about 7.5% for fiscal 2020.

Shares have actually gained more than 46% since March 23. The company recently authorized a reverse stock split, choosing a 1-for-10 ratio; this cut the number of shares from 800 million to 80 million. For investors, this means that for every 10 shares owned, they’ll now have only a single share.

Even though the stock spiked on this news, it’s not a good sign for ODP. The reverse split doesn’t change the company’s current situation, and actually hints at a cloud of uncertainty.

ODP will likely have a long, hard road ahead of it. The Covid-19 pandemic has not been helpful to its structural plans—the company is seeking to shift away from brick-and-mortar stores to a business-to-business model—and investors may want to stay on the sidelines until their growth plans become clearer.

Investors who are interested in adding a retail stock to their portfolio could consider Best Buy (BBY - Free Report) , a company that specializes in consumer electronics and home office products. BBY is a #2 (Buy) on the Zacks Rank, and shares have skyrocketed 114.5% since mid-March.

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