MENDING OFFICEMAX

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MENDING OFFICEMAX

 user 2006-03-06 at 10:05:00 am Views: 63
  • #14713

    Mending OfficeMax
    The
    CEO has a plan to turn around the No. 3 office supplier, but the Itasca
    company has far to go to catch up with rivals Staples and Office Depot

    After
    battling a disgruntled investor for much of last year, OfficeMax Inc.
    CEO Sam K. Duncan has some breathing room as he tries to fix the ailing
    office supply seller. But turning around a troubled retailer is a rare
    feat, industry watchers say.
    “Fewer than one in five retailers that
    find themselves in a degree of distress actually manage to turn
    around,” says Holly Felder Etlin, a principal at XRoads Solutions
    Group, a New York-based restructuring firm. “The hardest thing in
    retail is to get a customer who shopped in your store, and is now
    shopping elsewhere, to choose to come back.”
    OfficeMax stock took a
    12% dive in late December after hedge fund K Capital Partners, an
    investor advocating a sale of the company, announced it was giving up
    its effort to replace OfficeMax directors. While the shares have
    rebounded since Mr. Duncan announced a plan to cut costs and redesign
    stores, they’re down 10% in the past year (closing Friday at $29.13),
    compared with a 19% rise for industry leader Staples Inc. and an 86%
    surge for No. 2 competitor Office Depot Inc.
    MAKING IT WORK
    Mr.
    Duncan was hired after a billing and accounting scandal that led to
    executive resignations. Eleven months on the job, he now has to prove
    his plan will work. In January, the former ShopKo Stores Inc. CEO said
    he would close 110 stores, expand higher-margin businesses such as
    printing services, redesign the stores and increase catalog sales by
    focusing on the small- and mid-sized business market.
    He’s hoping to
    stanch the flow of red ink. In 2005, Itasca-based OfficeMax had a net
    loss, after preferred dividends, of $78.1 million, or 99 cents a share.
    That compares with net income of $161.1 million, or $1.77 a share, the
    year before. Sales fell 31% to $9.16 billion.
    Even if Mr. Duncan’s
    plan meets its goals, profitability likely will still lag Staples and
    Office Depot, Lehman Bros. analyst Bradley Thomas says.
    MORE ATTRACTIVE TO BUYERS
    Mr.
    Duncan aims to boost operating profit margins from 1.1% in 2005 to 4%
    in 2008, Mr. Thomas says. Margins were 8.2% at Staples and 4.4% at
    Office Depot last year, he says. Still, any improvement will help boost
    OfficeMax’s stock, the analyst says.
    Ultimately, an improved
    OfficeMax could be sold and even divided up among Staples and Office
    Depot. Ten days before starting his job as CEO in April, Mr. Duncan
    reached a deal to sell retailer ShopKo to an investment group.
    “Even
    if these improvements fall short of expectations, they will make the
    company more attractive to a potential buyer,” Gimme Credit debt
    analyst Evan Mann writes in a Jan. 30 report.
    For his part, Mr.
    Duncan, who declines to comment for this article, has admitted he has
    his work cut out for him. “We’re in the process of a turnaround, and
    we’re going to have things go with us and against us along the way,”
    Mr. Duncan told investors last month. “But I would expect that 2006
    would continue to get better.