What happened
Shares of office supply and service provider The ODP Corporation (ODP -16.73%), formerly known as Office Depot, fell as much as 10% on Aug. 5. Although it managed to work back from that loss, by 2 p.m. EDT, the stock was still down roughly 7%. The big news behind the move was the company's second-quarter earnings release.
So what
Before getting into second-quarter earnings, there's a little background to cover. On July 1, Office Depot reorganized as The ODP Corporation. Although it was more than a simple name change (it involved creating a holding company to better organize the ODP's various businesses), the real impact on investors is minimal. At the same time, however, the company announced that it had completed a 1 for 10 reverse stock split.
Now the stock is trading in the high-teens as the split doesn't actually change anything at the company. However, it did pull the stock up from the low-single-digit dollar area that investors tend to avoid when looking at stocks to buy. That said, stocks often trade lower after material reverse splits like this one.
Image source: Getty Images.
Now let's talk about ODP's second-quarter earnings. The top line fell 17% year over year, with operating income going from a $24 million loss in the second quarter of 2019 to a huge $439 million loss this year. That translates to a second-quarter 2020 loss of $8.19 a share, but that was driven largely by one-time items (including notable impairment charges).
Pulling out those items, the company's adjusted loss was $0.07 per share in 2020 versus an adjusted profit of $0.68 a share in 2019. Wall Street had been expecting a profit of $0.08, so investors weren't all that pleased with the final results here and acted as you'd expect.
To be fair, COVID-19 has been a material headwind at a time when the company has been working toward sizable structural changes. Although that's not an excuse, there's a lot going on at ODP today as it seeks to shift its focus away from physical retail outlets and more toward a business-to-business model. The story is, at best, complicated right now.
Now what
As the second quarter and subsequent events highlight, ODP is something of a work in progress. In fact, most investors would probably be better off thinking of it as a special-situation stock. As such, ODP is only appropriate for more aggressive investors willing to pay extra attention to their portfolios. More conservative long-term investors would be better off sitting on the sidelines until more progress has been made in this corporate overhaul.
