ODP Corp: A Discounted Retail Play with Long-Term Value Potential

The retail sector has been a tempest for many investors in 2025, with ODP Corp (NASDAQ: ODP) standing as a case study in the challenges of navigating macroeconomic headwinds and shifting consumer behavior. The company's second-quarter earnings report—scheduled for August 6—has already revealed a grim reality: year-over-year revenue declines of 9.2%, a 41.1% drop in EPS, and a retail division shrinking by 12% as store closures and weak demand erode its footprint. Yet buried beneath these short-term struggles lies a compelling narrative for value investors: a stock trading at a steep discount to its peers, with strong operational discipline and a pipeline of cost-saving initiatives that could catalyze a turnaround.

The Short-Term Pain: A Retail Sector in Retreat

ODP's struggles are emblematic of a broader retail malaise. The company's Q2 2024 results—its most recent fully reported quarter—highlighted a 9.8% year-over-year revenue decline, driven by tepid business spending, a struggling technology segment, and a retail division grappling with stagnant foot traffic and online conversion rates. The Office Depot consumer arm, once a cornerstone of the business, has seen 58 store closures in the past year alone, compounding its 12% sales decline. Even ODP Business Solutions, its B2B arm, faced an 8% revenue drop, underscoring the sector-wide reluctance to spend on non-essential goods.

The company's guidance for 2024—revised downward to $7 billion in sales, $3.03 in EPS, and $350 million in adjusted EBITDA—reflects a stark acknowledgment of these challenges. Yet, the same report hinted at a pivot: Project Core, a $100 million annual cost-cutting initiative, and a strategic shift toward high-margin categories like JanSan (janitorial supplies), MRO (maintenance, repair, and operations), and packaging. These moves signal a recognition that ODP's survival in this environment hinges on operational rigor, not just top-line growth.

The Long-Term Opportunity: A Discounted Valuation with Structural Advantages

Here is where value investors must separate the wheat from the chaff. ODP's forward P/E ratio of 5.92 and PEG ratio of 0.42—far below the Retail - Miscellaneous industry averages of 13.54 and 2.88, respectively—suggest the market is pricing in a worst-case scenario. At these levels, the stock appears to offer a margin of safety, even if the path to recovery is uncertain.

The company's balance sheet further supports this thesis. A debt-to-equity ratio of 0.42 (down from 0.68 in 2023) and a current ratio of 1.57 indicate a leaner, more liquid capital structure. Free cash flow, though volatile, has shown resilience: $45 million in Q1 2025, up 165% year-over-year, driven by disciplined working capital management. Meanwhile, a Zacks Value Style Score of “A” underscores its appeal as a fundamentally cheap stock.

Critics may argue that ODP's Zacks Rank of #3 (Hold) contradicts its valuation metrics. However, this discrepancy reflects the market's skepticism about near-term earnings revisions rather than a rejection of the company's long-term prospects. The #3 rank assumes a “in-line with the market” trajectory, but for value investors, the key question is whether ODP's intrinsic value justifies a higher price tag once its strategic initiatives bear fruit.

Strategic Catalysts: Can Project Core and E-Commerce Partnerships Deliver?

ODP's roadmap for recovery hinges on two pillars: cost discipline and diversification. Project Core, with its $100 million in annual savings, will directly boost margins and free cash flow. Equally critical is the company's pivot toward high-growth categories. JanSan and MRO, for instance, are recession-resistant sectors with steady demand, while packaging aligns with e-commerce tailwinds.

A less-discussed but potentially transformative move is ODP's partnership with a large e-commerce company, which could amplify Veyer's supply chain services division. Veyer's EBITDA grew 17% year-over-year in 2024, and this collaboration could unlock new revenue streams while reducing reliance on the volatile retail segment.

Risk Considerations: Is the Discount Too Good to Be True?

No value play is without risk. ODP's revised guidance for 2024—$3.03 in EPS, a 8.2% decline from 2023—highlights the fragility of its earnings model. A prolonged economic slowdown could further depress business spending, while the company's retail store closures may erode brand visibility. Additionally, the share repurchase program, while commendable, is a double-edged sword: it boosts EPS in the short term but may stretch liquidity if cash flow remains uneven.

For long-term investors, however, these risks are manageable. ODP's $831 million in liquidity, combined with its strategic focus on low-cost operations, provides a buffer against downside scenarios. Moreover, its 2025 guidance for a 4.5% EPS growth in FY2025 (to $3.16) suggests the company is already laying the groundwork for a rebound.

Conclusion: A Buy for the Patient Investor

ODP Corp is not a short-term trade—it's a long-term bet on a company that has been unfairly punished by sector-wide headwinds. Its valuation metrics, while attractive, require patience to unlock their full potential. For investors with a five- to seven-year horizon, the current discount offers a compelling entry point into a business with a resilient B2B model, a disciplined management team, and a clear path to profitability.

The key is to balance optimism with caution. Monitor the August earnings report for signs of stabilization in the retail division, and track the rollout of Project Core and Veyer's e-commerce partnerships. If ODP can execute on its strategic priorities while maintaining its cost discipline, this discounted stock may yet deliver outsized returns for those willing to ride out the near-term turbulence.