What happened
Shares of The ODP Corporation (ODP 0.35%) -- the parent company of brick-and-mortar retail chain Office Depot -- soared on Monday after the company announced preliminary financial results for the second quarter of 2022, updated full-year 2022 guidance, and announced a $600 million share-buyback plan. As of 1:30 p.m. ET, ODP stock was up 15%.
So what
For Q2, ODP expects to report sales of $2 billion, down almost 13% from last year but better than what Wall Street was expecting. It does expect to report negative adjusted free cash flow (FCF) of around $120 million. However, it's typical for ODP's FCF to dip in Q2 as it builds up inventory in anticipation of back-to-school shopping in the third quarter.
For 2022, ODP expects sales of $8.45 billion to $8.6 billion and adjusted FCF of $200 million to $225 million. For perspective, it reported sales of almost $8.5 billion and adjusted FCF of $328 million. Therefore, sales are expected to be flat year over year, and FCF is expected to dip. But the stock is up today because, again, this is better than what the market was expecting.
Now what
The other reason ODP stock is up today is likely due to its announced stock-repurchase plan of $600 million. Considering its market capitalization is just $1.8 billion, a plan of this magnitude has the opportunity to significantly move the needle for shareholders. After all, when a company repurchases shares, the ownership stake of remaining shares gets bigger.
But there's a caveat here. For share-repurchase plans to create shareholder value, the overall share count has to go down. That wasn't the case for ODP in 2019 and 2020. The company bought back $70 million of its stock during those two years but also paid out $74 million in stock-based compensation (SBC), neutralizing the positive benefit of the share repurchases.
However, ODP is taking share repurchases more seriously lately. In 2021, the company repurchased $277 million in stock but only paid out $38 million in SBC. That's encouraging. And if this is a trend that continues in 2022, today's $600 million repurchase plan could be a boon for shareholders.
Official financial results for ODP's Q2 are expected in August.
