Good morning. And welcome to The ODP Corporation’s Third Quarter 2021 Earnings Conference Call. All lines will be in a listen-only mode for today’s call, after which instructions will be given in order to ask a question. At the request of The ODP Corporation, today’s call is being recorded.

I would like to introduce Tim Perrott, Vice President, Investor Relations. Mr. Perrott, you may begin..

Good morning. And thank you for joining us for The ODP Corporation’s third quarter 2021 earnings conference call. This is Tim Perrott, and I’m here with Gerry Smith, our CEO; and Anthony Scaglione, our Executive Vice President and CFO. Also joining us today is David Bleisch, our Executive Vice President and Chief Legal and Administrative Officer.

During today’s call, Gerry will provide an update on the business, focusing much of his commentary on our accomplishments in the third quarter, including our operational performance, as well as the progress we are making on all of our initiative to drive shareholder value.

David will then provide commentary on the previously disclosed proposal made by USR, an entity controlled by Sycamore Partners, the owner of Staples, to acquire the consumer business of The ODP Corporation. After David’s commentary, Anthony will then review the company’s financial results, including the highlights of our divisional performance.

And following Anthony’s comments, we will open up the line for your questions. Before we begin, I’d like to inform you that certain comments made on this call include forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements reflect the company’s current expectations concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially. A detailed discussion of these risks and uncertainties are contained in the company’s filings with the U.S. Securities and Exchange Commission.

Also during the call, we will use some non-GAAP financial measures as we describe business performance.

The SEC filings, as well as the earnings press release, presentation slides that accompany today’s comments and reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are all available on our website at investor.theodpcorp.com.

Today’s call and slide presentation is being simulcast on our website and will be archived there for at least one year. I would now turn the call over to ODP’s Chief Executive Officer, Gerry Smith.

Gerry?.

Thank you, Tim, and good morning to everyone joining our call today. We appreciate you joining us this morning and hope all of our listeners and their families continue to remain safe and healthy. I’m happy to be here with you today to discuss the results and accomplishments for the third quarter.

Our performance in the quarter reflects our team’s continued commitment to our low cost model approach and in the core tenants that drive our business position us to deliver solid operating results while making progress on our strategic initiatives to unlock shareholder value.

I’m extremely proud of our team’s efforts in delivering these results, gets a much more demanding industry backdrop related to supply chain challenges and the resurgence of the COVID-19 Delta variants during the quarter.

As I’ve mentioned on our previous calls, our performance and strategic actions are aligned and supported by the key tenants that form the foundation of our business as outlined on slide four in our presentation.

These tenants form our foundation as we address market dynamics, pursue new avenues for growth and continue to position our business to unlock future value for shareholders. This foundation is rooted in driving a low cost model, expanding our value proposition and moving into higher value businesses through the addition of new growth engines.

As reflected our results, we’ve been executing along these priorities, utilizing the strength of our business model and the flexibility of our infrastructure to dress the market demands. At the heart of our approach is our winning 5C Culture. This quarter, I will highlight one of the key components of our 5Cs and that is creativity.

We have leveraged this component of our culture over many years to create a highly flexible supply chain operation backed by strong relationships and a well developed infrastructure to allow us to navigate many of the current challenges impacting the macro supply chain and economy.

This approach has helped our team deliver solid operating results, while continuing to advance our Digital Platform Business and making progress on our plans for separation. The highlights of these accomplishments for the quarter are shown on slide five.

First, as I’ve stated in previous calls, maintaining a safe environment for our associates and our customers continues to be priority number one. We continue to monitor state and national health guidelines and we’re maintaining safety measures as necessary to help protect our associates and customers.

Now for the highlights, we delivered solid operating performance, despite the industry-wide challenges related to sourcing and supply chain, as well as a slower pace of back-to-office due to the spread of the Delta variant.

We are happy to see a more normal back-to-school season, as a greater number of students and teachers returned to the classroom this year, with core supply categories, helping to offset lower sales for products previously in strong demand during the height of the pandemic.

Our continued low cost model focus and flexible supply chain operations help to drive solid operating results against a more challenging backdrop. Next, supporting one of our key tenants of driving new avenues of growth and higher value markets we continue to advance our Digital Platform Business, Varis.

We continue to make great progress on building out the team and capabilities, leveraging new customers on the BuyerQuest platform, while advancing our collaboration with Microsoft. The progress we’re making places us in an excellent position to drive value the large and growing Digital business commerce market in the future.

Also, we’re continuing to make progress our plans to separate ODP into two independent publicly-traded companies. We announced the top leadership for both companies and we are making meaningful progress on the various commercial agreements between the future entities.

Finally, we’re happy to report that we’ve been executing upon our share repurchase program, buying back over $100 million of stock during the quarter and through the end of October. Now turning to more details regarding our accomplishments in the quarter beginning on slide six.

Our overall performance reflects both of positive attributes of our team’s approach operational excellence, as well as the value of other investments we made in our infrastructure, as we face a more challenging industry backdrop during the quarter.

This backdrop included the spread of the Delta variant, delaying the return to office plans for many of our enterprise customers, as well as the global supply chain constraints and inflation have created the recent industry-wide sourcing and cost challenges.

While our topline did see pressure from reduction in our store footprint and lower demand for certain pandemic-related products, our team’s continued focus on drive a low cost model, while leveraging the flexibility of our supply chain assets allowed us to deliver solid operating results.

Supporting our performance, we drove stronger year-over-year growth in our contract channel, as private enterprises slowly begin to return to the office. The back-to-school season while still not back to 2019 industry levels, saw more students and teachers returned to the classroom contributing to our performance as well.

In all, our teams discipline and utilize their supply chain strength and continued efficiencies across their business, offset many of the challenges and help us derive $122 million in adjusted operating income in the third quarter.

Now turning to our divisional performance, starting with our Business Solutions Division or BSD as highlighted on slide seven.

Our BSD segment consisting both our contract and our eCommerce channels continues to provide a strong value proposition for customers with a broad product and service assortment backed by robust sourcing and trusted supply chain operation.

This segment of our business serves nearly half of the Fortune 500 companies, as well as medium and small enterprises, and other consumers through our Digital presence.

BSDs revenue performance was highlighted by the increase in sales in our contract channel, driven by stronger demand in core categories from private enterprises, more than offset by lower sales in our eCommerce channel. Overall, revenue was down about 2% year-over-year. Let me provide more details.

The business environment in the quarter was stable in general. However, as I stated earlier, the pace of back-to-office for many of our customers was slower than we anticipated due to the spread of the Delta variant.

Despite this challenge, we drove an increase in sales in our contract channel led by the stronger demand from enterprise customers for our core supply products, furniture and managed print services. While we’re happy to see this progress, it is slower than we anticipated given the Delta variant effect.

Much of this progress was offset by lower sales in our eCommerce channel compared to the very strong period last year, as the demand for pandemic-related products, including PPE and furniture was lower in the quarter. I would add that a most challenging sourcing environment for technology products have contributed to lower sales in this category.

Revenue generated from our adjacency categories, including cleaning and breakroom, furniture, tech and copy and print remained flat in total with last year as a percentage of BSD sales. As return-to-office begins to accelerate, we expect our core categories to over perform until the pace normalizes.

From an operating perspective, we continue to maintain our focus on our low cost model approach, flexing our assets and utilizing pricing strategies to help offset increased costs related to supply chain operations and other inflationary impacts. Our sales team is continue to do a good job in both retention and winning new business.

Our retention rate is at the highest it’s ever been and earning new business. Moving forward, we’re also encouraged by the indication of the positive impacts to our business as customers return to the office.

In general, on a per customer basis, our recent data shows that we do experience a lift in sales as more employees return to the office, and as just discussed, primarily in our core supply categories. This high correlation with return to work in the office will drive higher consumption of our breadth of products.

And while the return to office has been slower to materialize and we had hoped for the second half of this year, we are confident that we are well positioned to capture the demand as activity increases in the new year. Now turning to our performance in our Retail Division as shown on slide eight.

Our Retail Division continue to provide strong value and support for our consumers, including education, home office and small business customers through a network of over 1,080 Retail stores and the convenience of a buy online pick up in store or BOPIS offering.

I’m proud of our associates for maintaining strict safety protocols and providing a positive shopping experience for our customers leading to continued strong Net Promoter Scores. Revenue performance in the quarter was lower versus last year primarily due to 160 fewer stores in service.

However, when adjusting for the store closure impact, we estimate revenue was down in the low-single digits. Some of the dynamics in the quarter include the resurgence of the back-to-school season, as more students and teachers came back to the classroom.

While we’re happy to see the return to a more normal back-to-school season, as I mentioned earlier, the total supplies of the industry has not yet recovered to pre-pandemic levels in 2019. That said, the back-to-school season was positive for us. We drove solid year-over-year growth in our school supplies and related categories.

In fact, for the categories that we participate, the data shows that we picked up market share in back-to-school categories versus last year. In all, we are encouraged by improved year-over-year trend and looking forward to the industry full recovery to pre-pandemic levels in the future.

These positives helped offset some of the impacts of lower foot traffic and lower sales for product categories that were previously in very high demand during last year third quarter.

During the height of the pandemic last year, we experienced very strong demand in our cleaning and breakroom, home office and technology categories, as customers procured PPE and set up home offices near the beginning of the pandemic.

As COVID-19 cases have begun to recede, demand for these items were lower compared to the strong performance in these categories last year. Additionally, we did face challenges a quarter related to supply chain and sourcing availability for a number of SKUs we sell.

The number of out of stocks we had this quarter continued to run higher than pre-pandemic levels, most notably for technology products in PCs, driven by the continued chips shortages, as well as overall challenges for components including certain ink and toner.

We are continuing to work with our vendors and partners to efficiently source these products and improve our inventory levels, but we expect these challenges to persist in the near-term. Operationally, our team’s continued focused on our low cost model help to offset some of these challenges, including increase in overall supply chain cost.

Through strong cost controls the benefits of our maximized B2B plan and the new labor model we implemented last year, our team drove an increasing operating margins versus last year. Overall, we’re encouraged by our progress.

Our store footprint continues to become more profitable and our omnichannel presence continued to be a popular choice among our customers. Demand through our BOPIS offering, while slightly lower on a comparable basis relative to last year is up about 70% versus the same period in 2019.

Feeding off the success of our 30-minute guarantee, we recently launched our 20-minute guarantee for in-store and curbside pickup. We are the only company retailer that we know to offer such a guarantee, which has been well received by our customers.

Coupled with the growth of independent delivery channels, we expect this will drive sales and continue to generate good customer satisfaction scores in the quarters to come.

Now as shown on slide nine, I’d like to take a moment to discuss impacts related to the industry-wide supply chain disruptions and how ODP is a position of strength to navigate this challenging environment. Much of the recent well publicized global supply chain challenges began with the onset of the pandemic.

During the COVID-19 outbreak, labor resources were constrained both in manufacturing and transportation, factory hours were limited and demand shift from service to products added additional stress to the system.

Where the obvious early casualties was the microchip shortage, causing sourcing and supply challenges and everything from vehicles to PCs, and I know how frustrating this challenge can be as I was the former CEO with global supply chain responsibilities of a major technology and PC manufacturer.

These factors continue to put strain on global supply chain assets including manufacturing, ocean carriers, port operations, long-haul, last mile and labor. Many raw materials used in everyday manufacturing have become scarce and more expensive to ship, causing suppliers to increase cost to their customers create an inflationary effect.

Transportation costs on the spot market have skyrocketed, with ocean carrier spot rates up hundreds of percentage points over the historical rates and labor scarcity and cost is continuing rise. All these factors have made it more challenging for all industries to source, import, distribute and deliver goods and do so at a reasonable cost.

These factors had an impact to our operations, causing sourcing challenges for certain products, increasing costs related to supply chain product and labor.

That said, because the investments we have previously made in our supply chain infrastructure and long standing relationships, ODP is better positioned than most companies to navigate through these challenges.

Why is it so? Well, boils down to the investment we made in our infrastructure, including our private fleet, the flexibility of our distribution network and the long-term relationships we’ve had with transportation partners and suppliers that place us in a position of strength.

Starting at the source, we leverage our large global sourcing office in Asia, a unique asset that provides us with a significant presence in the region, allowing us to stay on the pulse of the manufacturing market dynamics.

We have a diverse number of manufacturing partners for private label and numerous vendor relationships that supply the products we source. We continue to work closely with our vendors, focus on accurate forecasts for our inventory, adjusting lead times and leveraging safety stock when needed, help us reduce the number of out of stocks and delays.

For the products that we sourced directly over the ocean and into the U.S., we have long established contracted rates with a number of different ocean carriers that protect us from the high spot market rates that you’ve heard about in the media.

These are longstanding relationships with contracts that are continued to be honored and when we do have a need, we have a backup plan comprised from relationships with non-vessel owning carriers, which also helps us protect some of the costs that we’re seeing from higher spot market rates.

Regarding port congestion, we utilize a flexible approach with a capability to route to other ports to help alleviate congestion challenges, where it is cost effective and available for us to do so. Additionally, we do a good job at planning well in advance to sources ship goods as necessary.

Also, we saw some pressure built earlier in the year, we put actions in place to help set inventory levels early. This helped us during this year’s back-to-school season, which was a good example of how we managed sourcing challenges.

Next, a key advantage for ODP is that we invested in and build our own large private fleet, helping manage some of the increases in over the road trucking and last mile delivery costs.

And because we delivered to Retail stores, we have a strong backhaul program that can use our closed loop transportation to bring in our goods, as well as our vendors goods.

We essentially run our own less than truckload or LTL network, leveraging this network for backhaul and vendor consolidation, helping to mitigate some of the industry rate increases.

For last mile delivery challenges, we leverage our private fleet and our relationships with over 25 national and regional small parcel carriers with which we have longstanding relationships. Last mile capacity has been severely constrained and capacity limits are in place.

While everyone has been scrambling to establish agreements with carriers, we are already there. This helps to mitigate costs, helps to ensure reliable delivery to our customers. Lastly, labor costs continue to be pressured, given the tight labor market and supply chain, Retail in general.

Wage inflation has become a real challenge in industry, increasing labor costs for us and others which we expect will continue in the near-term. We are remaining the market competitive for labor resources, by using creative approaches that are more short-term oriented, including incentive base which offers us flexibility in the future.

All these are leading to higher supply chain product costs and greater challenges in sourcing and managing inventory.

While impacted by this environment expected challenges to remain for some period of time, we do have pricing flexibility that allows us to pass-through some price increases to help alleviate cost pressures and we can pull other cost levers to help manage margins.

Now turning to the progress we’re making in our Digital Platform Business as shown on slide 10. We’re very excited about the progress we’re making our Digital Platform Business, Varis and impressive team that we’ve assembled to drive future growth in this valuable market.

We’ve fully integrated BuyerQuest, an industry leading Digital eProcurement technology platform that are continuing to attract and integrate new customers. We’re continuing to advance our collaboration with Microsoft and preparing to bring the capabilities of BuyerQuest to Microsoft’s Business Central customers in the future.

We are continuing to generate strong interest from the supplier community as they’re recognized the expansive reach and capabilities of our new platform. Our progress is placing is on the right path with the right team and technology platform to pursue growth in the large and growing Digital business commerce market.

While we are still in the early stages, we’re extremely excited at the pace at which we are executing and look forward to sharing more as we position the business in 2022 and beyond.

Before I turn the call over to David Bleisch for a brief update on Sycamore, I wanted to spend a few moments to highlight our progress on a separation initiatives, as shown on slide 11. Our plans to separate ODP into two independent publicly-traded companies continue to progress in the third quarter.

We are making advancements in all areas of the separation including organizational structure, operating and supply chain mechanics, IT support and on the commercial agreements between the companies.

As part of this progress, we announced the selection of CEOs of both companies to become effective upon completion the spin-off, as well as the company names for each of the two entities.

We announced the Kevin Moffitt, who currently leads our Retail business will be appointed CEO of Office Depot upon completion of spin-off and I will lead The ODP Corporation, a leading supplier of B2B solutions serving small, medium enterprise level companies. The timing for completion of the separation currently remains the same.

As a reminder, a description of the anticipated post-spin companies and the related assets is shown on slide 12. Separating a highly integrated accounting like The ODP Corporation is not an easy task.

However, we believe that creating two highly focused pure-play companies enhances our strategic flexibility and unlock opportunities to meet customer needs, align our assets and investment profiles to generate greater values for our shareholders.

We remain on track with our plans and expect to provide additional detailed information in the coming quarter.

With that, I will now turn the call over to David Bleisch, our Executive Vice President and Chief Legal and Administrative Officer who will provide commentary on the previously disclosed proposal made by Sycamore Partners, the owner of Staples, to acquire the consumer assets of The ODP Corporation..

Thank you, Gerry.

As a reminder, on June 4, 2021, USR Parent, the owner of Staples, a Sycamore Partners subsidiary, which I will refer to Sycamore, made a public proposal to acquire The ODP Corporation’s consumer business, including The Office Depot and OfficeMax Retail stores business, the company’s direct channel business officedepot.com and The Office Depot and OfficeMax intellectual property including all brand names for $1 billion.

The company’s Board of Directors will continue to carefully review Sycamore’s proposal with the assistance of its financial and legal advisors to determine the course of action that it believes is in the best interests of the company and its shareholders.

The company remains in conversation with Sycamore as it further evaluates the potential value and regulatory risk of Sycamore’s proposed transaction. The company’s previously announced plan to separate the company into two independent publicly-traded companies during the first half of 2022 remains on schedule.

With respect to CompuCom, the previously disclosed sale process continues to progress. We are working toward announcing the transaction before the end of the year, but there can be no assurance that we will do so. We do not intend to provide any further details on this process until it is completed.

I’ll now turn the call over to our Chief Financial Officer, Anthony Scaglione..

Thank you, David, and good morning, everyone. I’m happy to be here with you today to discuss our financial results for the third quarter of 2021.

As I begin my review, I would like to take a moment to thank our entire team for their continued focus on delivering results against a more challenging industry backdrop, while executing on our separation plans.

As Gerry mentioned, separating a business as integrated as ODP takes remarkable commitment and skill, and doing so while we’re managing the industry challenges is truly impressive.

Before I speak to the quarter and as a follow up to Gerry’s comments, I thought I would take a few moments to discuss in more detail some of the costs and inflationary impacts we faced primarily relating to COGS, supply chain and labor, as well as the strategies we’ve been employing to address these headwinds.

While these are industry wide challenges and not unique to our business, we have been taking several actions to help mitigate some of the impact to our operations. Let me start with product inflation. The overall cost of products from our suppliers continues to be on the rise over recent quarters.

Materials containing pulp, aluminum, steel and resins, as well as those products sourced overseas were most affected. This has impacted many of our skews, including paper, furniture, tech and other essential office categories.

While it’s still in the early stages in total across our entire COGS base, we have seen a low-to-mid single-digit percent rise on average in overall product costs.

Next supply chain related costs, including transportation, distribution and labor costs were also higher, creating challenges as we sourced and distributed products to our Retail stores and to our end customers. Demand is up and capacity is limited, and transportation and labor costs and supply chain has risen.

In total, our supply chain cost to serve was up over 100 basis points, driven from higher transportation and distribution rates, third-party logistics and labor. Breaking out labor costs, wages for logistic workers and in general labor costs across our Retail operations, when combined were up high-single digits across the business.

These costs and sourcing challenges that we face during the quarter will likely continue into 2022. That said, we are in a strong position to mitigate many of these impacts and have been taking early actions to address. Our strategy has been rooted in a few key areas.

First, from a supplier sourcing standpoint, we are leveraging our private fleet and third-party relationships to help mitigate some of the cost increases in transportation and ensure reliable services to our customers. This extends from ocean carrier contract arrangements to domestic small parcel carrier relationships, as well as long-haul.

For products invoice increases in both our Retail and BSD channels, we have been managing price actions and passing through cost increases to customers where appropriate, while remaining competitive with the market. These price actions are not uncommon.

And in fact, we had already anticipated some of the cost pressures and have taken early action in several skews. We’re also working to manage through increases in labor costs. In our Retail segment, our labor model and efficiencies we have gained to our store footprint have helped mitigate some of the increased costs for our operations.

In our BSD and supply chain areas, we’re using more short-term incentives rather than long-term wage locks, helping us address the wage inflation but dampening long-term effects. The capability to execute upon all these actions is a testament to the investments we have made over the years and a core strength in how we operate on a daily basis.

However, the environment has become more challenging and we expect that these conditions will persist into 2022. That said, we are in a good position to continue to mitigate some of these challenges and to continue to manage accordingly.

Now turning to the highlights of our financial results as shown on slide 15, consistent with previous quarters, we have provided our results on both a GAAP and adjusted basis.

Our financial results reflect many of the drivers and dynamics that Gerry identified earlier, including a more normalized back-to-school season, a slower pace of return to the office activities, as well as the aforementioned supply chain dynamic. As you heard, costs have risen relative to last year in the areas of materials, labor and supply chain.

Our team has remained focused on driving a low cost model and taking aim at addressing these inflationary cost pressures. We have seen positive results from these efforts, maintaining margins in the business despite the more challenging backdrop.

Also, as I mentioned last quarter, I would like to highlight that CompuCom results are being treated from an accounting perspective as an asset held for sale. Therefore, CompuCom results are not consolidated in our topline revenue or at the operating income level and is reflected on a net basis below the operating line.

Our prior periods have been adjusted for this change as well. Turning to the specifics of our quarterly results, we generated total revenue of $2.2 billion in the third quarter, down 7% versus Q3 of last year.

This was driven primarily by 160 fewer stores in service compared to last year, coupled with lower comparable sales for products previously in high demand during the early stages of the pandemic.

We saw an increase in core supply categories which was offset by lower demand for PPE, cleaning and furniture categories, primarily our -- in our Retail and Digital channels. Technology and Ink categories were also lower in the quarter, partially driven by sourcing challenges impacting availability.

Despite the slower than anticipated back-to-work trends in the quarter, we drove an increase in sales in our enterprise contract channel and our back-to-school performance generated positive year-over-year results. GAAP operating income in the quarter was $104 million, up slightly from $102 million last year.

Included in operating income was $18 million of charges, including $5 million of non-cash asset impairment charges, primarily related with the right-of-use assets associated with our Retail locations.

The remaining $13 million in net merger, restructuring and other costs was primarily associated with our separation efforts largely related to third-party advisory costs. We expect these costs to continue as we continue to make progress on our separation activities.

Excluding these and other items, our adjusted operating income for the third quarter was $122 million, compared to $136 million last year. Unallocated corporate expenses were $26 million, as we continue to develop our Digital Platform Business. Adjusted EBITDA was $162 million for the quarter, compared to $175 million in last year’s third quarter.

This includes adjusted depreciation and amortization expense of $36 million and $37 million in the third quarters of 2021 and 2020, respectively.

Excluding the after-tax impact from the items mentioned earlier, adjusted net income for the third quarter was $96 million or $1.76 per diluted share, compared to adjusted net income of $102 million or $1.88 per diluted share in the prior period.

Turning the cash flow, we generated operating cash flow of $121 million, which included $3 million of restructuring costs. This compared to operating cash flow of $256 million last year.

The reduction year-over-year is largely due to timing and higher working capital use in the quarter related to an increase in accounts receivable and quicker payment terms for certain items, given the sourcing challenges I mentioned earlier. Additionally, we had an AMT tax refund of $44 million in last year’s results that did not repeat this year.

Capitalization expenditures in the quarter were $90 million, compared to $13 million in the prior year period, reflecting targeted growth investments in our digital transformation, distribution network and eCommerce capabilities, offset by lower CapEx in our Retail Division.

In future quarters, we expect to increase our capital investments in our Digital Platform, as we make progress on Varis. Adjusting for cash charges of $3 million associated with the company’s restructuring plans, adjusted free cash flow in the quarter was $123 million.

Now I’d like to cover our business unit performance starting with our BSD division on slide 16. As a reminder, BSD consists of our contract channel serving large, medium and small enterprises, as well as our eCommerce channel, both backed by a flexible and reliable supply chain and distribution network.

As you heard from Gerry, the pace of return-to-work did not materialize as quickly as we had hoped for the quarter. Due to the spread of the Delta variant, however, we did generate growth in our contract channel. This growth was offset by lower sales in eCommerce.

Reported sales in the quarter for BSD were $1.2 billion, down 2% relative to last year’s third quarter. On a positive note, as more businesses slowly began to return to the office, we saw an increase in demand for core supplies driving stronger sales in our contract channel.

Demand for core supply categories were up in the high single digits, highlighting the correlation between returned to the office activity and core supplies growing in the mix. Also, furniture and print services showed better traction during the quarter in this channel. Overall, adjacency categories remained at 44% of total BSD sales.

Offsetting this progress was lower sales in our Digital channel compared to the strong demand during the height of the pandemic. Sales of PPE, technology and furniture, all products in very strong demand at the height of the pandemic, were all lower in this channel during the quarter.

That said, our eCommerce channel is a key component of our omnichannel presence, providing our customers with the convenience and ease of shopping online and fuels our strong and growing BOPIS offerings, with those sales reflected in our Retail business.

BSD’s operating performance remained relatively steady, despite the challenges related to an increase in supply chain and distribution costs. Operating income was $41 million in the quarter versus $45 million in the prior year period. This represented only a slight decrease as a percentage of sales.

A mix shift into core supplies and continued cost efficiencies help to mitigate the increase in distribution costs. Now turning to our Retail division results, as shown on slide 17.

Reported sales in the quarter were roughly $1 billion, down 13%, primarily driven by 160 fewer Retail stores in service this year versus last year, including seven of which we closed during the quarter.

When eliminating the impact of store closures, our estimate of open store comparable sales were just down a few points, continuing to strength we have seen over the last year.

This is our estimate of the impact, given a variety of factors making the comparisons difficult on a standalone basis, but we are pleased with the Retail store performance and their results.

Same-store traffic was slightly lower year-over-year, with the increase back-to-school traffic being offset by lower in-store traffic relative to the third quarter of last year during the pandemic. Our sales conversion rates are up balanced by lower average order volume, leading to essentially a flat sales per shopper.

While the demand for back-to-school supplies still has not recovered to pre pandemic levels, we did drive stronger growth in school supply categories contributing to our performance. Additionally, we saw strong performance in our copy and print services up about 25% compared to last year.

Balancing this progress, we saw lower demand compared to the very strong performance last year for categories relating to the pandemic. These included PPE and cleaning products, furniture and technology. I would add that out of stocks also added to lower sales of technology products like PCs, as well as Ink during the quarter.

Our omni presence continue to be recognized by the market. BOPIS sales on the same-store basis were essentially flat with last year, however, are up over 70% from pre-pandemic levels, showing continued strong demand for this service.

And as mentioned earlier, our 20-minute guarantee we just launched is the first in a nation to offer this convenient service for our customers. All of these actions allowed us to deliver strong operating margin performance in the quarter, despite the higher cost challenges.

We generated operating income of $107 million in the quarter, down compared to $119 million in the same period last year. However, as a percentage of sales, operating margins were 10.7%, a 30 basis point improvement from last year. Strong core supplies, improvements in operating and lease cost and continued cost efficiencies drove this result.

Now briefly turning to our balance sheet highlights as shown on slide 18. We ended the quarter with total liquidity of approximately $1.7 billion, consisting of $753 million in cash and cash equivalents and $953 million in availability under our asset-based lending facility.

Total debt at the end of the quarter was approximately $353 million, primarily comprised of our long-term IRB bonds. Our balance sheet continues to remain a source of strength and provides us flexibility as we pursue growth and execute our strategy. I’ve already covered the capital items in my comments earlier.

However, I would like to highlight that we have been executing upon our previously announced share repurchase plan during the quarter and subsequently in October. We repurchase about 1.7 million shares of our stock for $76 million during the quarter. Subsequent to the quarter we repurchased an additional 600,000 shares for approximately $24 million.

This leaves roughly $150 million remaining under our $300 million authorization. As a final comment, I would again like to thank our entire organization for their strong commitment and executing upon our strategic initiatives and meeting the challenges of the quarter.

I would emphasize that our entire team is enthusiastic about our future, excited about our path for growth and energize to continue to create value for shareholders. We are making progress and excited about our new Digital Platform Business, Varis. We are very encouraged by our progress to-date and the team we have built.

2022 will be a critical year of development as we enhance the capabilities of this platform, add new customers and continue to work with the supplier community.

Moving forward, in the coming year, we expect to continue to invest and focus even more resources targeted at capturing this large and high growth opportunity in the Digital Business commerce market. We look forward to sharing more details at year end as we continue to position this business. One last comment before we turn it over to your questions.

Given the continued unpredictability and the pace of back-to-office activity, as well as the uncertainty related to the global supply chain, we are continuing to suspend guidance at this time.

We do expect that the global challenges related to supply chain costs and inflation would likely intensify as we head into year end, but expect to continue to manage with the actions, I mentioned earlier.

To conclude, we remain very encouraged about our future and the progress we are making across all of our strategic initiatives and are keenly focused on leveraging our strong position to navigate the global challenges and drive future growth. With that, I will turn it over to your questions. Thank you..

[Operator Instructions] Our first question comes from the line of Chris McGinnis. Please state your company name then proceed with your question..

Yeah. Good morning. Sidoti and Company. Thanks for taking my questions and nice quarter. If we could just start off maybe around Sycamore. Can you maybe just explain a little bit more, are you an active conversation with Sycamore at this point? Thanks..

Hey, Chris. Good morning. It’s Gerry. I’ll say that we’re on ongoing conversations, as David said. We’ll continue to evaluate the value, as well as the regulatory risk.

I think it’s really important to highlight that we’re going to evaluate all options, whether it’s a sale, whether it’s spin that create the best -- what’s the best option for creating shareholder value? Anthony, the Board and myself take that very seriously that, our job is to pick the right path with the highest value for our shareholders, and again -- as -- again, we’re on ongoing conversations with them to evaluate that..

Okay. Great. And just around the supply chain, obviously, a lot of talking on the call. Can you just talked about your inventories had in the Q4? How you feel about that.

And I guess, just on pricing, are you at price at this point, are you still a little bit behind, and I guess, how does that progress as you think over Q4 and then head into 2022? Thanks..

Hey, Chris. This is Anthony. I would say on the inventory side, overall, we’re right where we expect to be from an inventory level, given the sales penetration, as well as movement in some of our categories that we started the year heavy.

So if you think about some of the PPE categories, hand sanitizers, we were able to move a lot of that throughout the year from an inventory standpoint.

So as we look at our inventory levels, heading into Q4 and into Q1, clearly still challenged in certain areas like ink and toner, certain technology has been a challenge, we don’t see that necessarily correcting in the near-term and it will continue to be a challenge from an inventory standpoint.

But, overall, we feel like we’re in a good shape as we look into the balance of this year and into Q1. Still some uncertainty and you’ll probably see trends consistent to what we saw in Q3.

Continuing performance overall in our Retail chain, in our contract business in -- within BSD is really going to be contingent on that return-to-office, which we now expect to more meaningfully be part of our Q1 story versus a Q4. But hopefully, trends continue to improve. Gerry..

Chris, two things I’ll add is, I think, it’s really important that, I’m very proud of this team for the performance we had this quarter, was of -- was the headwinds that we experienced. I think I highlight two things.

Number one is our low cost model, we continue to be able to respond to pricing and inflationary pressures and make sure we pass that through and drive that through to the bottomline.

But I really want to highlight, we spend a lot of time with script on and we are dancing on ice, we really have a supply chain strength with crossed arm, I want to thank our supply chain, our procurement, our merchandising, as well as our global sourcing office at San Copolis [ph] and Shenzhen, as well as Hong Kong.

From end-to-end perspective, we made a lot of investments pretty quietly over the last three years or four years, but we have a private fleet. We have long-term relationships with many partners. We have ocean rates that are on the contracted basis. We have been able to weather -- we have many relationships across 3PLs as well.

So I think relative to a lot of other people and a lot of other industries or even our industry, because of this focus on supply chain and the strength we have on our teams, we’re able to wrap quicker and bluntly work through some of the challenges that many people are facing.

So we’re very proud of the team and you can see from our results, our ability to took off and execute to that..

Yeah. Appreciate that. And then I guess just one last question around demand trends. Are they -- I guess, specifically to BSD, are you seeing an increase in October and acceleration from the demand you saw in Q3? And then just maybe conversations you’re having with the customers on kind of timing those coming back into the office? Thanks..

Yeah. I think the good thing there, Chris is, where we see -- seen companies come back more meaningfully in Q3, the correlation to a pickup in our core was pretty high. So we’re seeing that positivity as companies return.

But given some of the delays that we saw, as a Delta variant have began to spread and Q3 became Q4 and now many companies are shifting to Q1. Clearly, we’re monitoring that pace of recovery from a return-to-office. But we have been in active conversations with our customers.

We see positivity in terms of our ability to serve -- service those customers in any environment. But clearly, the tailwind can occur as the normalization to return-to-office occurs..

Okay. Anything -- and I guess, just one quick question on that hybrid model. Can you just talked about your offering there, how you’re positioning and is an opportunity to take share in this environment, given the hybrid model? Thanks..

I think because -- I think a couple things. Number one, Steve, and his team have done a good job of partnering closely with our large enterprise customers as they source to a hybrid approach and so we’re continuing to make investments in that area. There’s a number of different facts of go-to-market strategies to be used.

And I think the fact of having multiple channels we have to reach from hybrid models important for us as well. In our online business, we’re continue to make investments in our apps we use and as well as our websites, as well as having the ability again the private fleets a huge advantage for us.

And so we’re able to deliver to customers both remotely, as well as they come back in the office..

Okay. And just around Varis, can you just maybe -- is there any data points you could provide us? I know it’s very early still. But can you just talk about maybe how….

Yeah..

…How it’s tracking versus your expectations and any more color you can provide around that opportunity?.

Sure. I think it’s -- I mean, I’m super pleased in where it’s tracking. I think Prince [ph] has built an incredibly strong team from a talent perspective. The Microsoft relationship continues to grow and develop and we have a lot of very positive trends on that piece. I think our platform developments going really well.

I’ll use an analogy for you thinking about this earlier this morning is, we’re really building a foundation. It’s almost like building a house. It takes a long time to see the progress of a house that we’re laying. We’re laying the pipes. We’re laying all that infrastructure. We are laying that concrete foundation down.

I mean, clearly, present outstanding technology leader, him and his team are doing a great job of really building that foundation. I think as we further in 2022 and 2023, as people are seeing from the results of that foundation, I think, it’s going to be a great value for us. I think we have an outstanding opportunity.

I think we’re in a space and opportunities that we think there’s a wide open market for us to go off and capture..

Great. Thanks for taking my questions. I’ll jump back into..

Thank you, Chris..

Thanks, Chris..

[Operator Instructions] Your next question comes from Michael Lasser. Please state your company before asking your question..

Good morning. Thanks a lot for taking my question. From UBS.

Given the correlation between those areas where you have seen a back-to-office in your sales performance, assuming that 2022 is a more normalized back-to-office environment, would you expect your business solution sales to get back to where they were in 2019, well, because of hybrid and other factor, it’s still going to be below where it was in 2019?.

Yeah. I think and Michael, too early to tell you clearly the cadence of the return-to-office and to my earlier comments around the correlation we’re seeing in the pickup in our core as people return to the office is a positive, offsetting that is obviously, where ultimately corporations land in that hybrid model.

So early indications, clearly, we’re able to serve customers in a variety of ways and we’re building towards the area that Gerry mentioned from a technology standpoint, ensure that we’re capturing that spend for corporations, no matter where the individual sits in the office or at home.

But it’s too early to tell whether the trends back to 2019 occur in 2022 or we start to see that that pace begin in 2022 and continue on in years there after..

I will add a little color. I mean….

Yeah..

Every CFO and every CTO in the company wants to make sure they manage their costs. And so, I think, in early days, the pandemic people just were able to expense out, but I think there’ll be more and more governance in the future, which will bode well for Office Depot, as well as our multiple channels of opportunity..

Thank you. My following question is with supply chain costs weighing on your gross margin in the third quarter. It’d been down 18 basis points.

Is that the number that we should think about using for the third quarter like the fourth quarter, and if that’s the case, are there offsets within the SG&A line back to help drive overall margin expansion in the fourth quarter?.

You know, overall what you saw from pressure point on supply chain, the labor increase, everything we mentioned in our prepared remarks, I think, that can that trend will continue through Q4.

Some of these costs, as we mentioned, are passed through to our customers through pricing actions, others -- our other initiatives from a productivity standpoint, I think, the company has exhibited that low cost model to address where those cost pressures are and in being ahead of those cost pressures as relates to some of the pricing areas.

And one thing to note that I didn’t mention in the earlier question is, we also took a very deliberate and strong stance as it relates to some of our discounting.

So as we looked at the quarter and we as we looked at inventory levels, we were not probably as heavily discounted as in years past, which obviously improved our margin profile and we expect, given all the challenges on supply chain, the challenges on products that will continue that trend throughout this year..

Thanks a lot..

Your next question comes from the line of William Kafoure. Please state your company before asking your question..

Hi. Company is Elevation. I just wonder if you could provide a little more color on the performance of higher education relative to K-12? Thanks..

We saw, I mean, from a back-to-school perspective, K-12. If you look at from a market perspective, overachieve last year. We felt from a forecast perspective, many people thought we’d get back to the -- industry to get back to 2019 levels. From NPD perspective, it did not. But the good news is we did take share relative with --within our sector.

So it’s above 2020 levels, but still slightly below 2019 levels. I do think as, hopefully that pandemic continues to wane and there’s not a variance after Delta, then I think that as people get more and more of a back to normal piece, we’re hoping in 2022, we’ll see some of that 2019 type of level of strength.

But I was pleased with the performance of our teams, especially, I obviously would have liked to have the 2019 levels, but I think I’m hoping 2022 we see more of that..

Great. Thanks. That’s all I had..

Thanks so much. Appreciate it..

At this time, I would like to turn it back over to Gerry Smith, CEO for closing remarks..

Okay. Well, thanks, everyone, for joining our call today. I want to highlight a couple things. We were -- obviously we’re going to continue to focus on driving our topline business, we’re going to continue to focus on our great execution across our low cost model.

We’ll continue to emphasize the power of our supply chain procurement sourcing teams across the globe in those relationships we have and we’re going to continue to ensure that we deliver shareholder value by evaluating all different avenues for value for the corporation. Appreciate the time today and everyone have a great day. Thank you..

Thank you. This concludes today’s conference. You may now disconnect. Speakers, please hold the line..