*NEWS*MENDING OFFICEMAX

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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.

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March 6, 2006 at 10:03 AM