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Gerry Smith

Thank you, Tim, and good morning, everyone. I'd like to start out by thanking all of you for joining our call today to review ODP's results and accomplishments for the first quarter of 2025. We appreciate your continued interest and support as we execute on our strategy to transform our business and position ODP for a long-term growth.
This morning I'll provide an overview of our performance for the quarter and share updates on the progress we're making with our Optimized for Growth plan and our B2B pivot. Both initiatives are helping us adapt to evolving market conditions, improve operational efficiency, and position the company for future topline opportunities.
As I walk through our performance, I want to focus on a few key themes that reflect our progress and provide context for our results as shown on slide 4 of the presentation. First, our strategies focus on leveraging our core strengths to accelerate our B2B pivot and enhance our position in our traditional enterprise market segment while expanding into new higher growth segments like hospitality and supply chain as a service.
Our supply chain assets, distribution capabilities, and enterprise customer base set us apart in the industry and provide a strong foundation for future growth in both our traditional segments and beyond. As a key element to our strategy, we are executing our Optimized for Growth restructuring plan that realigns our organizational structure, product offerings, and go to market strategies to accelerate our B2B pivot and expand into new enterprise segments. This plan also helps us reduce fixed costs, increase operational flexibility, while reducing future reliance on our retail business.
Second, strong execution of our strategy has led to early signs of traction in key areas of the business. In the quarter, we improved our overall year over year performance trends and generate significantly higher adjusted free cash flow, placing us in a better position as we move throughout the year and execute our strategy.
Additionally, while yet to be notable in our results, we're making progress in expanding into new markets beyond traditional office supplies. And finally, we have a solid balance sheet and available liquidity and a business model that generates free cash flow, all which supports our strategy and provides flexibility for future growth.
Let me now expand on these points and provide more detail on a performance for the quarter, starting with the slide 5 of the presentation. Overall, we're off to an encouraging start to the year with our overall performance reflecting positive momentum and improving year over year comparable trends in the first quarter.
Our focus on core operations and the execution of our strategy help us deliver a sequential improvement in adjusted EBITDA and generate a meaningful increase in adjusted free cash flow compared to last year. Specifically, on an adjusted basis, we drove $76 million in EBITDA and $45 million in free cash flow.
Our performance was led by our consumer division, Office Depot, which delivered better topline trends compared to last year while delivering higher margins on a sequential basis. This helped drive stronger cash flow generation driven by targeted consumer initiatives supported by our Optimized for Growth plan.
While store closures impacted our total topline results, we're happy to report that our comparable store trends improved 300 basis points from the fourth quarter of 2024 and improved 500 basis points from the same period last year.
Average order volumes are up over last year. Our loyalty program enrollments are climbing, and categories like paper are performing better. This performance trend accelerated in the month of April, give us confidence in our momentum as we move into the next quarter and throughout the balance of the year.
In our B2B business, top line trends were about the same as last year, reflecting the continued soft market demand and impact of comping over one large customer loss from mid last year. I would also note that some of our recently announced new business contracts are still in the onboarding phase and are not yet running at full speed. That said, we're making progress in several areas.
We're continuing to win new business and we're making progress in our expansion into the hospitality industry. On the new business front, we recently added CoreTrust, a large group purchasing collective with over 3,500 enterprise members to our portfolio.
We're actively onboarding CoreTrust and other large new business wins, which we expect will add to our performance in the second half of the year. Additionally, we expect that the progress we are making in the hospitality sector will begin to more meaningfully contribute to our results in the second half of the year, helping us change our trajectory.
In all, given the new business we've added, our expected progress in the pace of onboarding, and our launch in the hospitality sector, we have growing confidence that our results will improve in the second half of the year.
In our supply chain business Veyer, we continue to deliver strong results, achieving over 85% year-over-year revenue growth from third-party customers and adding significant new accounts to its portfolio. This performance highlights the value of our supply chain capabilities and the growing demand for our services.
And finally, from a cash management standpoint, our team continues to effectively manage the business and inventory to maximize cash flow. Cash conversion improved significantly in the quarter, helping us generate $45 million in adjusted free cash flow, which is more than double the free cash flow we generated in the same period last year. I'd like to thank my team for their dedication and focus on cash management.
Turning to slide 6, I'd like to provide an update on our progress in the hospitality market. Three months ago, we announced a strategic partnership with one of the world's largest hotel management organizations, a company preferred provider for operating supplies and equipment. While we're at the early stage of our deployment, we made progress in expanding into this growing $16 billion market segment. We're excited about this opportunity as it aligns perfectly with our core strengths in supply chain and distribution and represents an important step in our efforts to diversify beyond office supplies.
Our first partnership covers approximately 15,000 potential customer locations within this hotel management group, and we believe it will serve as a foundation for future growth in this segment and other related industries.
Our key accomplishments include establishing agreements with leading suppliers like Sobel Westex and Hunter Amenities, giving us access to a supply of premium hospitality products such as linens, towels, and personal care items.
Next, building up inventory to meet anticipated demand. While inventory build and sourcing are taking a bit longer than we anticipated, we're gaining momentum in building our position to meet future demand.
Next, adding sales talent with deep hospitality experience to drive growth. Additionally, engaging with potential customers and franchisees whose feedback regarding our services has been positive and encouraging.
Next, forming a relationship and signing a supply agreement with a key industry player that we believe will accelerate discussions with other hotel management companies. And lastly, we're also in ongoing discussions with several other key market participants to develop future relationships.
While we are still in the early stages of our launch and have more work ahead, these efforts are laying the groundwork for ODP to deliver meaningful growth in this segment. We expect these initiatives to begin contributing more significantly to our results beginning in the second half of the year.
And finally, I want to highlight the progress we're making with our Optimized for Growth restructuring plan. This is shown on slide 7. As a reminder, this initiative focuses on capitalizing on our core strengths to accelerate growth in the B2B distribution and third-party logistics segments while reducing our fixed-cost infrastructure and limiting future retail exposure and associated liabilities.
The plan realigns our organizational structure, product offerings, and go-to-market strategies to target high-growth opportunities in the B2B market while also expanding into new enterprise segments, including hospitality, healthcare, and adjacent sectors.
We made significant progress in the quarter, executing efficiency measures targeted at reducing fixed costs. We closed nine retail stores under the program and eliminated areas of corporate support structure. The progress we are making is helping us redirect resources and add flexibility in our operations in both our consumer and B2B divisions.
Before I turn over to Max, I'd like to reiterate that we are off to a better start to the year, driving improved overall trends and generating a significant increase in adjusted free cash flow. Our consumer business has improved, and we are anticipating continued momentum in the months ahead.
In our B2B business, we are winning new business and anticipating better trends in the second half of the year as we onboard new customers and drive more meaningful results in the hospitality segments. We will continue to focus on the core, driving our strategy and initiatives, remaining committed to generating value for our shareholders. I also note that we are evaluating the tariff situation that has been evolving over the past few months.
While we're not immune from potential impacts, our team has been working closely with our vendors, evaluating strategies. We've taken previous actions we believe will help us mitigate potential impacts. With that, I'll turn it over to Max.

Max Hood

Thank you, Gerry, and good morning to everyone on the call. I'm Max Hood, Co-CFO. I would like to cover the specifics of our results for the first quarter on slide 9. Please note that our results, as presented, are for continuing operations.
We generated total revenue of $1.7 billion in the quarter, reflecting a 9% decline compared to the first quarter of last year. However, this result marks an improvement in the year-over-year trend compared to prior quarters.
The decline in sales was primarily driven by several factors, including 46 fewer stores in operation, reduced retail and online consumer traffic, and lower sales within ODP Business Solutions.
Our GAAP results in the quarter included $86 million of charges, primarily related to $48 million of restructuring expenses associated with our Optimized for Growth plan and $30 million in non-cash asset impairments of operating lease right-of-use assets associated with our retail store locations and distribution centers.
The balance of the charges in the quarter was related to the impairment of certain software and other store-related fixed assets. Notably, the initial restructuring charges associated with the Optimized for Growth plan included $36 million of severance costs that we are estimating to incur over the life of the plan.
Considering these charges, GAAP operating loss in the quarter was $32 million versus GAAP operating income of $41 million in the prior year period. Excluding these charges, adjusted operating income for the first quarter was $54 million compared to $66 million in last year's first quarter. Unallocated corporate expenses were $20 million in Q1.
Adjusted EBITDA was $76 million in the quarter compared to $91 million in last year's first quarter. This includes adjusted depreciation and amortization expense of $25 million in the first quarters of 2025 and 2024.
Excluding the after-tax impact from the items mentioned earlier, adjusted net income from continuing operations for the first quarter was $32 million or $1.06 per diluted share, compared to $50 million or $1.31 per diluted share in the prior year period
Now turning to our strong cash flow generation in the quarter. Operating cash flow from continuing operations in the quarter was $57 million, which included $10 million in restructuring spend. This compared to cash provided by operating activities of continuing operations of $44 million, including $4 million in restructuring spend in the same period last year.
The year-over-year increase in operating cash flow was a result of our operational discipline and prudent working capital management, converting recent inventory investments into cash as we indicated last quarter. This led to strong cash conversion in the quarter.
Capital expenditures were $21 million in the first quarter of 2025 versus $31 million in the prior year period, as we continued to prioritize capital investments toward B2B growth opportunities, supporting our supply chain operations, distribution network, and digital capabilities. Adjusted free cash flow in the quarter was $45 million, a significant increase compared to adjusted free cash flow of $17 million generated in the same period last year.
Now turning to our consumer business, Office Depot, as shown on slide 10. Office Depot is off to a strong start to the year, with year-over-year top-line trends and margins improving in the quarter as targeted profitable sales strategies gain traction. Reported sales were $838 million in the quarter, down 11% compared to the prior year. This result represented an improvement in the year-over-year trend we reported in the same period last year.
Overall sales were impacted by 46 fewer retail locations in service associated with planned store closures, as well as lower traffic trends and online sales, partially offset by higher average order volumes and the positive impact of targeted sales promotions. In total, we closed 12 retail stores in the quarter and had 857 stores at quarter-end.
Our targeted sales initiatives are helping to drive a significant improvement in comparable store sales metrics. On a same-store basis, sales were down 5% year-over-year, representing a 500 basis point improvement in our same-store comp over last year's first quarter.
From an operational standpoint, operating income for the quarter was $45 million. On a percentage of revenue basis, this result represented a sequential increase in margins as our sales mix and targeted initiatives helped to partially offset the impact of lower revenues.
On a year-over-year basis, operating margins were flat. Moving forward, we will continue to execute upon our profitable sales initiatives in our retail business, balancing our pricing and promotion strategy with demand elasticity. We are excited about our progress, and as Jerry mentioned, our efforts have continued to gain momentum as we entered the second quarter.
We will also continue executing our Optimized for Growth plan that will target efficiency gains across the organization and help us lower fixed costs.
Now turning to ODP Business Solutions, as shown on slide 11. Demand remained soft during the quarter, consistent with trends in the same period last year, as cautious business conditions and restricted enterprise spending budgets persisted.
Reported revenue was $852 million, down 8% year-over-year, but showing slight improvement compared to the trend in the fourth quarter of last year. Results were impacted by weaker enterprise spending and the lingering effects of a large customer loss mid-last year. However, we expect to comp over this customer loss by next quarter, which should help improve trends.
Furthermore, while the onboarding of certain recent new customer wins has been slower than anticipated, progress is being made. And we expect these contracts to contribute more meaningfully to future quarters.
Regarding new business, we are executing initiatives to convert our strong new business pipeline into revenue to help us regain top-line traction. We're initiating service for one of the largest contracts in company history as we previously announced, and are winning key new contracts, including our agreement with CoreTrust, and over 3,500 business member purchasing collective serving major industries in manufacturing, retail, hospitality, and finance.
In all, when you look at the past three quarters, we have won contracts that represent over $500 million in annual spend when fully implemented. Only a portion of this is currently onboarded. But as we progress, these contracts should help improve the trends beginning in the second half of the year.
Another area that we see great promise in is the hospitality market. While it has only been a couple of months since our announcement of our entry into this industry sector, we are making great progress in building the foundation for future growth in this segment.
We've built key relationships with major suppliers in the industry. We have forged new relationships with other key players in the industry. And we have met with many potential customers, receiving great feedback regarding our service and entry into the industry.
Considering our progress, we are anticipating that our efforts in this area will more meaningfully contribute to our results in the second half of the year and beyond. From a product standpoint, most categories were lower on a year-over-year basis, including technology products, a factor that many other companies are experiencing industry-wide.
Our adjacency product categories as a percentage of total revenue, our primary KPI, remained at 44% in the quarter, generally consistent with last year and recent trends. From an operating perspective, the flow-through effect of lower revenues, pricing mix, and related fixed-cost deleveraging resulted in operating income of $21 million in the quarter compared to $31 million in the prior year period.
Despite the challenges, we are encouraged by our improving position for the future as we execute our strategy and expand into new market segments. This positions us to improve recent trends and drive our B2B business as we move into the second half of the year.
Now turning to our results in our supply chain business, Veyer, as shown on slide 12. Veyer's reported top-line performance reflected lower sales from its internal customers, ODP Business Solutions, and Office Depot, partially offset by continuing to build momentum and driving revenue growth from third-party customers.
On a consolidated basis, Veyer delivered sales of $1.2 billion in the quarter, primarily derived from supporting the purchasing and supply chain operations of ODP Business Solutions and Office Depot, which are effectively eliminated upon consolidation.
Veyer continued to make strong progress in executing its strategy to serve third-party customers, adding new logos to its customer list and driving a strong increase in external revenue.
Being mindful that some of Veyer's third-party profitability is accounted for as a contra expense instead of flowing through revenue. For Q1, Veyer delivered third-party revenue of $17 million, up 89% over last year.
Veyer drove third-party IEA of $3 million, flat with the prior year, as the company invested in resources to onboard its slate of new customers in the quarter. Now I'll turn it over to Adam to cover our balance sheet highlights.

Adam Haggard

Thank you, Max. It's great to be here with everyone this morning. I'm Adam Haggard, Co-CFO. Turning to slide 14, our balance sheet and liquidity position remains solid, ending the quarter with total liquidity of $653 million, consisting of $185 million in cash and cash equivalents, and $468 million in available credit under the Fourth Amended Credit Agreement. Total debt was $262 million.
Moving on to capital allocation, we continue to execute our capital allocation strategy, primarily investing in our core to drive the future of our business. We invested $21 million in CapEx in the quarter versus $31 million in the prior year period, targeted in our supply chain operations, distribution business, and digital capabilities to set ourselves apart in the industry.
As we move forward, we expect to prioritize our capital allocation towards investment in core B2B resources, positioning us to capture the growth opportunities Gerry discussed earlier. We believe investing in our B2B business and expanding into new market segments will drive the highest ROI and create long-term value for shareholders.
Before I turn the call back to Gerry, I would like to make a few comments about our preparedness regarding the evolving tariff situation that has been unfolding over the past few months. As Gerry mentioned, we have taken proactive measures to position ourselves effectively to mitigate potential impacts as the tariff situation continues to evolve. Over the past several years, we have diversified our sourcing strategy, shifting away from China to other countries in the region for direct imports supporting our private label products.
On the indirect side, we are closely collaborating with our vendors, monitoring developments, and implementing actions to minimize potential impacts. These measures include sourcing products from countries less affected by tariffs, introducing strategic pricing initiatives where feasible, and identifying alternative brands to reduce exposure. While we recognize that we are not entirely immune to the changes in the tariff environment, we are confident that the steps we have taken have positioned us well to navigate this dynamic situation.
Looking ahead, while we are not providing detailed guidance at this time due to market dynamics and ongoing tariff uncertainty, we can share the following directional outlook for the year. We anticipate continued improvement and trends within our consumer business over the coming quarters.
In our B2B business, we expect to see improving trends as we onboard new customers and gain traction in the hospitality sector, with the majority of this improvement expected in the second half of the year. Veyer is expected to maintain its momentum by converting its customer pipeline, expanding its customer base, and driving growth in third-party revenue.
Finally, we anticipate significantly higher adjusted free cash flow generation compared to last year, along with further improvements to our leverage ratio by year-end. We remain focused on executing our strategic priorities and focused on our core to deliver on these expectations. With that, I turned the call back to Gerry.

Gerry Smith

Thanks, Adam. Before we turn over for questions, I'd like to reiterate a few key points. First, we're off to a better start to the year, improving our consolidated year-over-year trends and generating a significant increase in adjusted free cash flow.
While the consumer business was the primary driver of our improved trends, and this performance has accelerated as we entered the second quarter of the year, we believe that our B2B business is in position to generate improving trends as we move forward, particularly in the second half of the year.
We have continued to win new business. In fact, over the past three quarters, we have won new contracts worth over $1.5 billion in annual revenue when fully implemented. We are encouraged by our progress and recognize we have more work to do as we focus on our core business.
Second, we're successfully executing on our strategy and making progress in our expansion into the hospitality industry sector. We have forged key agreements with major suppliers and key market participants.
We have met with many potential customers covered in our first agreement, and we are receiving very positive feedback. We're engaging in discussions with other large hospitality management companies for future agreements. And we're adding to our sales expertise and building relevant inventory to help us meet future demand. In all, while we are in the early innings, we believe our efforts to expand into the hospitality sector will more meaningfully contribute to our results in the second half of the year.
Third, we're actively executing our Optimized for Growth restructuring plan, which is designed to reduce fixed costs, accelerate our B2B pivot, and gradually decrease our reliance on retail. Furthermore, as highlighted earlier, our flexible business model and proactive measures have positioned us well to help mitigate potential tariff impacts effectively.
And last, considering our strong balance sheet, valuable asset base, supply chain and distribution capabilities, and strong cash flow profile, we believe ODP offers a unique and compelling value for shareholders as we execute our strategy. With that, operator, we'll turn it over for questions.

Question and Answer Session

Operator

(Operator Instructions) Greg Burns, Sidoti.

Greg Burns

Could we maybe just start off with getting a little bit more insight into some of the momentum you have on the retail side of the business? Maybe a little bit more detail on what kind of sales promotions and sales strategies you've been implementing that have been driving the improved performance.

Gerry Smith

Sure, hey, good morning, Greg. This is Gerry. Thanks for joining the call today. Love to say that first, I'm super excited with the progress there. I mean, our strategy for a retail business is to drive cash and margin, and that team is doing it.
So I would say there are four key things to that. First, over the last seven years, we've developed a really good muscle in our stores that took a long time to develop with our store leadership. By meeting and greeting customers to drive our net promoter score, we've taken that muscle and turned it into a sales motion. So, you know, they're meeting, greeting, and selling at the front door.
Second, we've had a significant change in our merchandising strategy started last year at the UBS conference with Michael. I teased a little bit of that in March, but we're finding a different way to sell. We have a number of product categories that are costing much better than in years before. And we think that we're giving a different value to our customers through that.
Third, very importantly, we have a daily management system. And Kevin Moffitt, my President of the division, is doing a great job with [Rish] and Andrew. I join that call as well. We look at every store every day. We look at every district -- 42 districts every day. And we look at the performance of the three regions every day.
Having that, I'll say, gamified system that we put in place 60-ish days ago has made a dramatic difference in the business. Merchandising P/E started in Q4. Our CEO of our advertising business came up with a great idea, and we drove that. But it's across these four things that have driven tremendous improvements.
I mean, having a 500 basis point difference in comp is dramatic from a year-over-year perspective. I will tell you, Greg, I'll tell everyone publicly, April's even better from a comp perspective. We're about a negative 4% roughly in April from a comp perspective. And sequentially, in the first nine days of May, we're even better than that.
So we're really excited about the performance. I want to thank Kevin, Rish, Andrew, and his team. And especially my three store leaders, Carlos, Billy, and Chris were there. Absolutely executing brilliantly across the store chain.
This is important. This generates a tremendous amount of cash flow, a tremendous amount of margin dollars. And as Max and Adam both said in their prepared remarks, we're seeing a difference, and we're optimistic this is going to make a difference for us over the long term as we ramp up both there and the B2B businesses.

Greg Burns

Okay great. Thanks. I guess considering the improved results and the traction you're seeing, how should we think about the pace of store closures going forward.
I guess also, considering the optimize for growth plan, how this all play together in terms of store optimization.

Gerry Smith

Yeah, Optimized for Growth will look at what's the best path for optimizing the most cash flow and the most margin dollars for the business. I will say, with some of these cost levels, it will completely change some of the trajectory of Optimized for Growth because as our shareholders want, they want more cash. They want more margin dollars.
Obviously, more cash will be great for the business, and we will evaluate the stores. Adam and Mike are running models right now, looking at if we keep this negative 5%, negative 4% comp, which is different than our models, what it means from a plan perspective. And we'll evaluate that going forward.
But I want all our shareholders to hear, the most important thing is optimizing cash, optimizing margin. And I'm excited because we're demonstrating the results are going to produce, as Adam said in his prepared remarks, we're going to generate more cash flow for the year. And we're super excited by that.
And our balance sheet got stronger on a quarter-over-quarter basis. And this is a retail business that should eliminate a lot of the fear that your shareholder base has, hey, what's going on with the retail business?
Our retail business is running extremely well right now. And we're going to continue to focus on the merchandising, the great store leadership, and the daily management model to optimize cash and margin dollars across the business.
Adam, actually, think that?

Adam Haggard

Yeah, I'd like to just reiterate your comment and just say that as we go through each quarter, we'll be continuously staring at the different stores and understanding the modeling and trying to extend stores as much as possible to drive as much cash flow in the future as we possibly can.

Greg Burns

Alright, great. And then on the solution side, why is the onboarding -- what has been holding up the onboarding process with some of these contracts?

Adam Haggard

I think it's different reasons for different customers. From a hospitality perspective, we're really early. It's a completely different industry. We're learning that from a supplier perspective. We love the supply relationships, but the lead times are much longer.
So as we said in our prepared remarks, it's taken us longer to actually get inventory in some of the key minimal viable categories. And we are rushing hard to do that. We are hiring a ton of qualified individuals to drive in that space, and I think, given the size of our relationship with CoreTrust, it's a huge contract with a lot of people to contact. And we are working really hard.
We are really pleased with the CoreTrust relationship and the team, including Mahesh and Greg, and the whole organization, but we will continue. It's coming. And we think it's coming in the second half.
We are going to start a daily focus in Dave's business like we did in Kevin's. So that worked. Adam, Max, and I talked about that earlier this morning. We are going to have that same daily momentum because I think that daily discipline and emphasis on results, what we took and what we found, super successful in retail. And gamifying who's first and who's last will be a great motivator for our B2B sales teams as well.

Greg Burns

Great. Thank you.

Operator

Michael Lasser, UBS.

Michael Lasser

Good morning. Thank you so much for taking my question. What categories within the retail business have you seen strengthen over the last few months, and is there evidence that you're seeing any signs of pull forward of demand as the consumer is trying to race out and buy some products ahead of what could be some price increases in reaction to the tariffs? Thank you.

Gerry Smith

Good morning, Michael, and thanks again for hosting me back in March. We really appreciated that. Great conference.

Michael Lasser

Great to see you, Gerry.

Gerry Smith

From a category perspective. I'll sort of answer a reverse direction, and we're seeing success in sort of non-tariff categories honestly. And so we've done a really good job of mitigating tariff exposure. We saw a little bit early like a 2 or 3 day period for like furniture and tech. We saw a bit of a spike. But that normalized pretty quickly.
These are sort of in our core categories, Michael, across the board of core supplies. I think that, I'm going to be careful. Obviously, we have the competitors sitting on the phone listening. But yeah, I'd be happy to spend time with you offline as well.
But we've really made a shift from our merchandizing strategy from our traditional high low to a different merchandizing strategy. That's more value oriented for our customers. I'm thinking that is really adding a lot of value. And what maybe, we can use that time later in the week or whenever you're available. I'd love to catch up with you.

Michael Lasser

That sounds great. Count on it. How much of an impact will the tariff situation be to ODP Corp across all of its segments? And how do you plan to mitigate the potential impact of tariffs?

Gerry Smith

We believe we've mitigated almost all the impact. Let me explain that because people might ask, how did they do that? A lot of the impact was on minimum average price, what we call MAP products, that our partners/suppliers set.
For example, our tech providers just rate the actual COGS of the product, and so the whole market floats up. From a pricing perspective, from us absorbing price a cost increase, the whole market's doing that. So the whole price looks up and we're able to pass that through contracts and pass that and obviously change our store pricing. That was the majority of a lot of it; and obviously there could be some demand elasticity, but we haven't seen that yet.
Second is we did a really good job on our direct imports. It's a big chunk of our COGS for private label and other pieces. Back in 2020, if you remember, we shifted a bunch out of China to other countries. And so Vietnam, Indonesia, Malaysia, a number of places. Sam and our GSO team have done it, and John's organization has done a great job of leading this.
And so we've dramatically reduced our impact on our direct COGS in China. And so as we have the pause from a tariff perspective, we obviously we're looking at that very carefully. And we have a 3 times a week war room that my whole staff, all procurement teams, all the merchants are on. We're looking at inventory, but because the fact we've had that shift in that, in COGS, we are not heavily exposed at this time.
And if there's a 10% where we believe we can drive that into our pricing, and we're not going to have a huge impact. There is a small impact, but we think we've mitigated over. Again, we will look at this on a daily basis. As you know, something could change overnight and something else could go up. Obviously, we're all hoping and praying that there's settlement in the future as well. So appreciate it.

Michael Lasser

Got you. Okay, one last question, recognizing you're not providing guidance, but how could, at least, conceptually the B2B business in light of the potential for continued underlying softness in the core business but being offset by the ramp in some of the new business activity that seems to be on the horizon? Thank you very much.

Gerry Smith

Yeah, let me -- I'll take a high level and let Max and Adam will jump in on the details. At a high level, I think, we do feel very confident from a cash flow perspective that we're going to be treated for the year as Adam said. And then from -- as we said in our very script, we do think there'll be sequential improvement in the second half of Dave's business. It's still too early to figure out that exact piece. But we do feel like we have line aside into improvements in the second half of the year across the business. But Adam and Max, please jump in.

Max Hood

Yeah, Michael, it's Max. Good to talk to you again. Yeah. So while we're not providing guidance, we do need to evaluate the tariff impact, what that's going to do to customer demand. But as Gerry said, we tried to provide as much high-level guidance as we could.
One other point is on free cash flow. So the performance of our consumer business right now is driving more cash and more margin. So we expect to have higher free cash flows than we did last year as well.
But really, we see a great trajectory with all three of our business units right now. I'm really excited about it. And just for clarity, (multiple speakers) solution, so everyone understands. Sorry about that.

Operator

Joshua Zoepfel, NOBLE Capital Markets.

Joshua Zoepfel

I apologize, I fell off so I missed some of the questions. So if I repeat something just let me know and we'll move on. So you know a lot of talk about the tariffs and the potential impact and it -- I don't know if you break it out this way or not, but I guess, what percent of the business or revenues is consumable products versus non-consumable products.

Gerry Smith

Can you clarify what you mean consumable versus non-consumable?

Joshua Zoepfel

So paper, I mean, if you're in the office and using paper, you're consuming paper versus a desk. You're buying a desk once.

Gerry Smith

Got it. Versus like furniture, which is -- I got it. So first, a big piece of our business is paper and all our paper supply is made in the USA. So thank you for our two suppliers that have US plants and we also have facilities in Canada for our grants and (inaudible) business
That's a super important piece because we don't have exposure of other companies who use imported paper versus being made in the USA. I would say that we've done a really good job on the consumable core products, which is what we're seeing to strengthen our B2C business that we talked about the comp changes. That's all consumable product that's driving that.
So why we're excited with the progress, there is even during this tariff peace, we're seeing a substantial comp improvement on a monthly and weekly basis. And so we think our strategy is working. So we've gone across all those areas, and we've evaluated where we think impact is.
Other consumable products are really affected by the market minimum average pricing as we talked about. And that's ink and toner and some of the technology products. And there was a pause on the higher tariffs on a lot of that. And so that's allowed us to not have the short term impact across year at this time.
There are increases of those products, but that's going to be -- the whole market will go up. And honestly that happens a lot throughout the last 9, 10 years. Pricing and costs go up. And there's a pretty consistent demand pattern as a result of that.
So, we don't have a lot of things that we don't think we're exposed longer term because of working with suppliers, making sure we're in the right low tariff locations. And honestly, stuff that wasn't -- we didn't think it was our position, we quit ordering. And we've been very disciplined in our procurement organization, which is part of their -- which is led by John Gannfors, our procurement organization led by Eric, done a great job of working with our partners and mitigating a lot of the exposure by being creative, looking at different suppliers, looking at different -- obviously, different factories they have across the world that are in low tariff locations.

Joshua Zoepfel

Thanks for that. And you talked about some initiatives to convert your strong pipeline of potential new business. And I guess the question is kind of what's different? What are you doing new now that you weren't doing in the past to convert that pipeline into new business.

Gerry Smith

Yeah, great question. First, we're, bringing in additional leadership in some of these new categories, very qualified in those marketplaces, which is super important. Second, we've started a really rigorous management system on a weekly basis. We're going to clip that up even more to make sure we're driving that.
And then we're having a lot of CEO to CEO meetings or President to President meetings on a frequent basis with these new partners and new customers to ramp up. And so honestly -- and hospitality, we're learning. It's a brand new category. We love it because it's an invitation only category which a lot -- so you can't =--people can't just open the floodgates and run in.
But it's a big market we're learning, and I think that we're building the muscle, sort of like what I talked about retail, we start building muscle in Q4 on this merchandizing change and the store operations in the future.
We feel we're sort of in -- and we're seeing those results now. We feel like we're sort of in that same pattern of building the muscle, building the sales capability. We've learned a ton about the inventory management and the lead time of the products and work with these partners and getting inventory in.
And then we just have to build that capability and starting to ramp those across hospitality and across CoreTrust and across some of these other large ones we have across the business. So we're-- we believe in the second half, we're going to start seeing results. And I think that will build a ton of momentum for us going into '26 as well.

Joshua Zoepfel

And then lastly for me I didn't hear any mention of the buyback. It's something that you guys have been -- I know last year was pretty big, the year before. And at the end of the year, you had mentioned you were cutting back on that. So I don't know if you give us an update on that.

Gerry Smith

Thanks for the question. I recognize the unintended message it sends. Let me say that the board management team have complete confidence in the future of the company. And very importantly, we continually evaluate potential stock repurchases on a regular basis, and we assess if there are any legal or regulatory constraints. This approach also applies to potential management or director purchases as well. This way, we don't comment on there individual buying decisions. And so, that's -- I think I've answered as correctly as I can.

Operator

Thank you. That concludes the Q&A session for today. I will now turn the call back over to the ODP Corporation CEO, Gerry Smith, for any closing remarks.

Gerry Smith

Yeah, I just want to thank everyone for joining the call today. We are confident that our core business is improving. We're going to continue to focus on our core. We're going to focus on continuing the B2C comp improvement across our merchandizing.
Our store execution has been great. And our daily focus -- we're going to also put that focus -- continue our focus on our B2B business on ramping up our core business of these new big wins as well as our hospitality business. And we're excited with the 85% year on year growth in John's business as well.
And so we're going to stay focused on generating cash, driving margin dollars and driving continued improvement as we saw much stronger balance sheets from a Q4 to a Q1 perspective. And we're confident, as Adam and Max said, that that's going to continue to improve in the future. And we'll have the ability to continue to generate cash to invest in future business opportunities to maximize shareholder value. Thank you so much everyone for joining the call today. Appreciate it greatly. Have a great day.

Operator

Thank you for your participation. That concludes today's call. You may now disconnect.