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 user 2006-08-22 at 12:54:00 pm Views: 38
  • #15977

    Office Depot CEO makes little things count
    BEACH — Truck tires and ink-jet cartridges have this much in common:
    They are generally not the stuff of meteoric stock growth.The CEO of
    Office Depot Inc. made his chops in the stock market as chief of
    AutoZone Inc. There, Odland employed many of the same strategies he is
    now using to strengthen Office Depot:Razor-sharp cuts in costs.
    Buybacks of company stock. A renewed focus on international and
    business-to-business sales opportunities.The resulting sky-high jumps
    in stock price endeared both companies — and Odland — to shareholders
    and stock market analysts alike.But AutoZone has stumbled since, and
    many believe deep cost cuts hurt sales growth. Similarly, analysts
    expressed some disappointment with recent quarterly sales numbers from
    Office Depot, even though profits were robust.Praise for Odland
    certainly hasn’t stopped. There was this, from Investors Business
    Daily: “The 42-year-old CEO is a study in how far you can take an
    innovative managing idea and succeed.” And this, from Credit Suisse
    analyst Gary Balter: “Sometimes you wish that he wasn’t at Office Depot
    and he was actually somewhere in the U.S. government cutting
    costs.”Odland, who is also chairman of the influential Business
    Roundtable’s Corporate Governance Task Force, seems uncomfortable with
    the personal attention. He prefers to attribute Delray Beach-based
    Office Depot’s strong stock market showing to the company’s 52,000
    employees.However, analyst Bill Sims of Citigroup Investment Research
    puts the emphasis back on the CEO’s shoulders: “We believe Office
    Depot’s future success will be dependent on the implementation of Steve
    Odland’s vision.”Pulled from the ranks of grocery industry executives,
    Odland knows the value of a close shave. That industry works on a
    tenuous profit margin — as little as 1 to 2 percent — and attention to
    even mundane details can make or break earnings.For instance, as
    director of marketing for the Quaker Oats Co.’s Golden Grain unit in
    the mid-1990s, Odland oversaw the repackaging of Rice-A-Roni — and
    helped propel a 44 percent hike in sales of the once-stale product. He
    later led the U.S. subsidiary of The Netherlands food giant Ahold SA as
    chief operating officer.

    That’s where he was when Eddie Lampert came calling.
    the wunderkind financier behind the Sears/K-Mart merger, sat on
    AutoZone’s board. In 2000, he and AutoZone founder J.R. “Pitt” Hyde
    went looking for a new CEO.Odland had no experience in the auto parts
    business. And at first blush, Lampert and Odland had little in
    common.At 25, a brazen Lampert sweet-talked Hollywood denizens into
    giving him millions of dollars to invest, eventually growing that early
    investment into the multi-billion ESL Investments fund. He once
    famously talked himself out of danger after being kidnapped at gunpoint
    and held in a motel bathroom for 30 hours. And some say he invented the
    notion of activist shareholder.By contrast, Odland is a Minnesota
    native whose first job was stocking groceries. Though he had risen to
    the top ranks of that industry, Odland had not led another type of
    retail company.But the two men appeared to share a passion for creating

    Thinking small
    Plenty of companies buy back
    shares of stock. Plenty of CEOs take a scalpel to costs. Plenty of
    stocks benefit from both.However, Office Depot’s attention to
    bottom-line performance, stock buybacks and rocketing share price feel
    like a management lesson from Yogi Berra: déjà vu all over again. In
    fact, pointedly asked how “The Lampert Doctrine” of
    cost-cutting would fare at Office Depot.Odland says there’s less to
    this than meets the eye.”If you look at any company in America,” he
    said, you would see the same strategies.But they might not be as
    focused. Having tackled larger costs — shuttering non-performing
    stores, selling real estate, consolidating operations and offering
    employee buyouts — smaller bills are being attacked in every nook and
    cranny, including the length of cash register receipts and
    energy-efficient light bulbs.That’s led to hundreds of small measures,
    “and they all sound silly,” admitted Odland.Like the cash receipt. When
    Odland walked into an Office Depot store to buy two pens, the receipt
    “was about a foot long and the paper was so thick you could have used
    it as a fan belt on your car.” Shortening the printout saved about a
    million dollars, he said. So did changing out light bulbs.”This is not
    rocket science,” Odland says.Maybe not. But between 2001, when Odland
    came on board as chairman and CEO of AutoZone, and 2003, the company’s
    stock ran gravity-defying circles around its competition.

    Here’s part of how he did it.
    were paid for a product only after a customer purchased it. A new
    commercial division sold parts directly to auto repair businesses.
    Expenses were pared. Shares were aggressively repurchased by the
    company.In the second quarter of 2002, year-over-year earnings rose by
    101 percent. Per-share earnings rose by 107 percent. The climb
    continued in the third quarter, with a 62 percent rise in net income.
    In 2003, shares hit an all-time high of $103.53, a price only briefly
    eclipsed since then.

    The market fell head-over-heels in love.
    does not discuss AutoZone, other than to say he enjoyed his time
    there.However, Wall Street’s affections are nothing if not fickle. In
    September 2003, BusinessWeek questioned whether earnings growth was
    distorting the underlying book value of the company. In October 2003,
    Lampert’s ESL announced it would sell off 5.6 million AutoZone shares.
    In December, the share price took a 15 percent nose dive, in part
    because of questions about sluggish same-store sales — those at stores
    that have been open for at least one year — considered a key indicator
    of a retailer’s strength.Goldman Sachs analyst Matthew Fassler
    suggested then that the company focus less on cutting costs and more on
    fundamentals, even at the expense of dampening earnings. “It’s
    essential for future profitability, and the company can take its
    returns from stratospheric to merely solid,” he wrote.By May 2004,
    competitors were gaining. Profits were strong — up by 29 percent
    relative to the previous year — and sales grew by more than 5 percent.
    At 2 percent, though, same-store sales were the soft spot: Advance Auto
    Parts had grown same-store sales by 6.9 percent. O’Reilly Automotive
    Inc. grew by 12.4 percent.Still, with share price up roughly 300
    percent, influential stockholders such as Lampert had little short-term
    reason to quibble — until Office Depot persuaded Odland to join their
    team.AutoZone shares plunged by $12.55, to $85.75, when it was learned
    the CEO was leaving.Shares of Office Depot shot up by 19 percent to
    more than $20 and have been going up ever since.

    150% gain in two years
    attention to bottom-line detail helps explain why share price rose by
    150 percent at Office Depot  in a little more than two years; why the
    company has posted 10 straight quarters of sales growth in its North
    American retail segment; why its per-share earnings remain strong.This
    month’s most recent quarterly numbers also looked good overall, but
    narrowly missed the forecasted $3.51 billion in revenue. That was
    enough to trigger a brief, if dramatic sell-off — shares tumbled by
    more than 8 percent before recovering — and raise some familiar
    issues.Michael Souers, an analyst with Standard & Poor’s, wrote
    that “while we believe that additional cost cutting can be achieved
    over the near term, the lack of growth potential… will ultimately
    hurt the shares, in our view.”There’s plenty of other analyst optimism.
    In fact, Odland appears willing to spend. He is moving forward with a
    plan to relocate corporate headquarters from Delray Beach to Boca Raton
    in a $100 million-plus move. He has two acquisitions under his belt. He
    does not believe that same-store sales are the best indication of
    growth; on the other hand, he is speeding up the time frame for
    remodeling older stores, which could boost those year-to-year sales.
    Twenty-six new stores have been opened to date; a total of 100 new
    store openings are planned for the year.And he appears to be distancing
    himself from his own reputation as a CEO with a cleaver.”I am trying to
    re-create a culture of thrift,” he said. “My number one priority has
    always been profitable growth.”