Office Depot has the vision to transform their business but can they execute on the plan? A look into the numbers and the challenges they will face to grow the top line at a relatively modest 4-year CAGR of 2%!

1. An Assessment of the Scale of the Challenge!
Office Depot’s business transformation strategy May 12, 2018

2. 2018 Basis &
Assumptions
• Adopt Office Depot management
guidance for Full Year 2018 sales at $10.8
billion
• Operating Income of $460 million (4.3%
of sales) prior to Merger & Restructuring
Costs, Interest Payments and Other
Income
• Adjusted Operating Income of $360
million (3.4% of sales) after Merger &
Restructuring Costs, Interest Payments
and Other Income
Extracted from OD Management Presentation May 9, 2018

3. A conservative goal for
top-line sales growth
• We have assumed management adopts a conservative
sales growth target of 2% per year
• Disclosed management projection for 2018 is $10.8
billion in sales
• 2% CAGR means 2022 sales will need to be $11.7 billion
• With 86% of sales currently coming from a declining
market in a transactional sales environment:
• What’s it going to take to get there?
• Assume retail product sales decline at 10% per year
• Assume BSD product sales decline at 5% per year
• Assume CompuCom product sales increase at 10% per year
(cross-sell OD products to CompuCom customer base)
• Then the balance must come from service based sales!

4. Sales Trend Assessment by Category and
Channel
Channel 4-Year Trend
Retail Products Sales decrease at CAGR of -10%
Retail Services Sales increase at CAGR of +19%
BSD Products Sales decrease at CAGR of -5%
BSD Services Sales increase at CAGR of +40%
CompuCom Products Sales increase at CAGR of +10%
CompuCom Services Sales increase at CAGR of +18%
Overall Top Line Sales increase at CAGR of +2%

5. Sales % Change by Category and Channel
Channel 2019 2020 2021 2022
Retail Products -10% -10% -10% -10%
Retail Services +10% +20% +25% +20%
BSD Products -5% -5% -5% -5%
BSD Services +50% +45% +40% +25%
CompuCom Products +10% +10% +10% +10%
CompuCom Services +45% +19% +5% +6%
Overall Top Line +2% +2% +2% +2%

6. Sales outlook by Category and Channel
Channel 2018 2019 2020 2021 2022
Retail Products 3,791 3,412 3,071 2,764 2,487
Retail Services 379 417 501 626 751
BSD Products 4,793 4,553 4,326 4,109 3,904
BSD Services 587 880 1,276 1,786 2,233
CompuCom Products 166 182 200 220 242
CompuCom Services 1,084 1,571 1,863 1,955 2,072
Overall Top Line 10,800 11,016 11,236 11,461 11,690

7. The Sales
Outlook by
Channel &
Category
Sales projected to increase at 2% CAGR from $10.8B to $11.7B

8. The Four Pillars
Underlying
Depot’s
Foundation for a
Transformation
to Services
Extracted from Office Depot slide deck published by Office Depot in conjunction with their 2018 Q1 earnings call

9. The Transition to Services

10. Depot’s Transformation & the
Importance of the Expansion of the
CompuCom Business Model
• 10 million devices under
management at closing (Nov
2017)
• Avg. Revenue per device $84
per year
• Maintain Avg. Revenue per
device at $84
• Increase devices under
management from 10 million
to 24.5 million (CAGR 18%)
in 5 years

11. The
Changing
Profile of
Sales
Revenue
Services projected to increase from 14% of sales (Q1 2018) to 43% by 2022
Product sales expected to decrease at a CAGR of -7% as Service sales increase at a CAGR of +25% from current (Q1 2018) annualized run-rate of $1.6B to $5.0B

12. How far has Depot’s retail
performance deteriorated?
• Year 2000
• 864 stores
• $6.5 billion in annual sales
• $300 in sales per sq. ft.
• Year 2018
• 1,366 stores
• $4.2 billion in annual sales
• $150 in sales per sq. ft.
• Key changes 2000 - 2018
• 60% increase in store count
• 50% decrease sales per sq. ft.
• 35% decrease in annual sales

13. The Changing Profile of the Retail Footprint
Legacy Stores: 20,000 Sq. Ft. Profile Store-of-the-Future: 15,000 Sq. Ft. Profile

14. The Changing Retail
Footprint
• Reduce overall store count from
1,376 to 1,071 (-22%)
• Year 2022 store mix target:
• 756 ”legacy” (15.2 million
Sq. Ft)
• 315 “store-of-the-future”
(4.8 million Sq. Ft)
• Reduce retail square feet 28%
from 27.5 million Sq. Ft. to 20
million Sq. Ft.
• Increase sales per Sq. Ft. from
$153 to $163 (+7%)
• Sales per Sq. Ft. at $163 are 30%
higher than they would
otherwise be ($125) but still
down 45% from year 2000
These details should not be construed as an Office Depot plan. They are based
on our view of a necessary reduction in retail square footage.

15. Office Depot’s
“BizBox”
Division –
Consultative
offering from
the retail
footprint
Built on the CompuCom platform
New division called
BizBox launched
November 2017
To sell business
services:
• Payroll & other accounting
functions
• Digital Marketing
• Logo design
• Website design
• Social media marketing
• Email marketing
Monthly Subscription
Service starting at $70
per month
Target market: 9 million
small business owners

16. What could Operating Income look like?

17. Conclusions
Product sales are likely to decrease 25% from
the FY 2018 outlook of $8.75 billion to $6.6
billion by 2022
If Depot fails to increase sales of its service
offering, (and the current run-rate of $1.6
billion), then it will become an $8.2 billion
enterprise by 2022 – 25% down on the current
2018 outlook
To achieve 2% CAGR on the current 2018 sales
outlook, Depot must achieve $5 billion in
service related sales by 2022
This requires a 5-year CAGR of 25% on the
existing $1.6 billion base of service related
products

18. Service Proposition
Risks
• Changing the sales culture from transactions to services
• 9 million small businesses form the target market
• In a Depot survey – almost 30% don’t even have a website
• This sounds like a good opportunity for BizBox and CompuCom,
but …
• Can Depot sell a value proposition most business owners
are likely to have difficulty understanding the full value
of?
• How many subscribers will they signup?
• How much will they be prepared to pay?
• How profitable will the service be?

19. Product Proposition
Risks
• Product sales may shrink faster than expected
• Customer churn increases (Amazon & OEM
Direct)
• Market shrink accelerates (paperless
transition)
• Margins decrease faster than expected
• Online competition
• Attempts to protect market share
• A declining topline combined with compressed
margins will endanger the transformation to a
higher mix of service related sales

20. Other
Questions
What happened to the 5,000 Sq. Ft. store footprint?
Is the transition from 20K to 15K stores aggressive
enough?
Why not transition to 5K stores and aim for sales of $300
per Sq. Ft.?
Does Depot have access to sufficient cash to fund the
transformation?
• Current debt availability: approx.: $2 billion (based on 4x EBITDA)
• Annual free cash flow: projected at $500 million +
So, yes, they should have plenty of cash available
It just comes down to execution!

21. Disclaimer
• We have no affiliation with Office Depot
• Office Depot has not contributed to this analysis
although we have relied on information extracted from
publicly disclosed documents available at their website
• We own no stock in Office Depot
• We are not financial analysts
• The assessments contained in this presentation are our
own opinions and are based on market knowledge and
industry experience
• We have not sought any comment from Office Depot
and we have no way of knowing if Office Depot
management agrees or disagrees with our assessment