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ODP Corporation (ODP) Looks Troubled, Hurt by Soft BSD Sales

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The ODP Corporation (ODP - Free Report) is slipping on the bourses, as the company struggles with sales across its segments due to the ongoing pandemic scenario. This is well reflected in the company’s second-quarter 2020 outcome, with the top line declining 17% year on year.

Well, shares of this office supplies and digital solutions provider have declined 8.3% in the past three months compared with the industry’s rise of 14.5%.

Again, we note that the company’s Zacks Consensus Estimate for revenues for third-quarter 2020 is currently pegged at $2,469 million, which indicates a decline of 11.3% from the prior-year quarter’s reported figure. The Zacks Consensus Estimate for earnings is at $1.31, which moved down 36 cents in the past 30 days. The consensus mark for earnings reflects a decline of 12.7% from year-ago quarter’s reported figure.

That said, let’s take a closer look at the aspects tarnishing this Zacks Rank #4 (Sell) company’s performance lately and the measures undertaken by the company to mitigate the same.

BSD Unit Looks Weak

Sales in the company’s Business Solutions Division (BSD) declined as much as 23% during second-quarter 2020, followed by a decline of 1% in the first quarter. The softness was mainly due to the coronavirus pandemic, which took a toll on the company’s contract channel sales. Owing to the restrictions imposed in the month of March to curb the outbreak, the company’s several B2B customers either paused operations or temporarily transitioned into a remote work environment. Moreover, reduced product sales volume and lower gross profit margin adversely impacted the segment’s operating income during the second quarter. Moreover, management cautioned that business disruptions caused by the ongoing coronavirus crisis may continue to impact sales in the second half of 2020.

Retail and CompuCom Units Also Lack Sheen

Matters have continued to be dismal at ODP Corporations’ Retail and CompuCom Divisions. During the second quarter, planned closure of underperforming stores and fewer transactions led to a sales decline of 9% year on year in the company’s Retail Division. It had 60 lesser retail outlets at the end of the said quarter. The company had earlier informed that it had also reduced store operating time by a couple of hours per day on a temporary basis. We note that product sales declined 4%, while service revenues fell 38% as copy and print services as well as subscription offerings were affected by the coronavirus outbreak.

Moving on, sales in the CompuCom Division declined 17% year over year, thanks to lower services volumes, delay in projects on part of customers and reduced demand for technology products due to business disruptions caused by the coronavirus crisis.

Any Hopes of Revival?

ODP Corporation is trying all means to give itself a complete makeover. Management is making incremental investments to catapult the company into a product and services-driven enterprise. As part of the “Maximize B2B” restructuring plan, the company targets to bolster its B2B platform, lower dependency on its retail consumer operations and maximize cost savings. It is also undertaking strategic review of the business operating model, which includes investing in small independent regional office product dealers while closing underperforming stores and non-critical distribution facilities. Moreover, the company is focusing on enhancing e-commerce capabilities as well as providing innovative products and services.

While these initiatives sound encouraging, they are yet to yield favorably and help revive the company’s lost sheen. The company is cautious regarding the ongoing uncertainties induced by the pandemic, and particularly their impact on back-to-work and back-to school scenarios. Persistent weaknesses across the company’s channels are likely to hinder performance in the forthcoming periods.

Other Retail Stocks to Bet On

Target Corporation (TGT - Free Report) has an expected long-term earnings growth rate of 7.2% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sprouts Farmers Market (SFM - Free Report) has an expected long-term earnings growth rate of 9.2% and a Zacks Rank #2 (Buy).

Best Buy (BBY - Free Report) , also a Zacks Rank #2 stock, has long-term earnings growth rate of 8.5%.

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