Depot shareholders strike gold with Odland



In a recent interview with OPI, Office Depot spokesman Brian Levine revealed that his company "has never had such a clear focus and direction as it has under Steve Odland." He continued: "We are more accountable than before. And we have clearly outlined the growth priorities and operating priorities that will help us grow."
Since the arrival of Odland at Depot from AutoZone in March 2005 – a move that had an instant galvanising effect on the company’s share price – the company has become one of the world’s top performing stocks. Since June 2005, when the firm’s share price was hovering around (what is now) a 52-week low of $21.70, it has increased, almost consistently, by over 100 percent to the recent high of $46.52 before closing at $39.47 at the time of going to press.
A year in the life of Staples’ and OfficeMax’s stock has also been positive, albeit on a smaller scale and a bumpier road. At Staples, stock moved from around $22 last June, and a 52-week low of $20.36 in the autumn, to enjoy a recent high of $27.71 before edging down to its last close of $24.40 at press time.
At ‘Max, the stock jolted up and down for the final six months of last year, before hitting a 52-week low of $24.20 at the turn of the year. Happily, since the company introduced its highly ambitious turnaround plan in January, the share price has edged up to a 52-week high of $44.73 in May before its most recent close of $40.50 on press day.
Odland had quite a reputation as a turnaround expert before joining the OP retailer (at AutoZone, he managed to actually quadruple the share price). So his focus was always going to be the bottom line, which cost previous CEO Bruce Nelson his job. "Cost management is near and dear to my heart," he said at a recent Credit Suisse retail conference.
"Of the hundreds of different projects that we have going on, all are million dollar-plus cost-saving opportunities. We are not sharing all several hundred with everybody, but the point is that they are collectively making a big impact on our business that you have seen through our past results."
These "results" of the last 15 months have been nothing short of staggering, with Odland transforming the company from a financial, structural and operational standpoint to achieve sales gains in all divisions and a meaningful profit expansion. Looking at the numbers, the company has delivered four record quarters in a row, added almost $1.2 billion in sales over this time and generated nearly $4 billion in annual eCommerce sales, which places it number two in the world behind Amazon.
Analysts have rallied around the company lately. Citigroup, which recently upgraded Office Depot shares from ‘hold’ to ‘buy’, stated that it believed the company is "in the early stages of a transitional turnaround". Buckingham Research Group, which has upgraded the company to ‘strong buy’, described the company as a "a two to three year turnaround story". Dan Binder, SVP at Buckingham Research and primary author on the report, added: "We believe the market will now be willing to give Office Depot greater credit for what appears to be a more open ended top line growth story, with strong profitability behind those sales."
To cherry-pick some of Odland’s most significant strategies and achievements, Office Depot has: opened 100 new stores in 2005 and is on track to open 100 more in 2006; initiated several pilot programmes including ink refill stations and geek squads (computer repair services); launched a new Worklife Rewards programme, the first in the industry to offer unlimited rewards; and significantly increased the penetration of private label products.
Management also plans to remodel 800 stores in the next three to five years, which marks the biggest single level of reinvestment in the company’s history and proves Odland’s desire to reinvest in the business as well as make it more profitable. 
"The store refresh programme to the M2 [Millenium 2] prototype is very important," said Odland at the Credit Suisse conference. "The prototype will cost us about $225,000 to $250,000 per store to renovate. We are pleased with the results, both in the top line as well as the margins."
He added: "So the race is on, and it will probably take us the next three or four years to get through the entire store base in order to get the M2."
To achieve what Odland describes as his "multi-channelled approach", Levine claims that the shared leadership model created by Odland when he joined the company was crucial. The model comprises an executive committee and a global officer coalition, including the company’s top 100 executives. "This facilitates information flow and makes individual officers around the world accountable for conveying their decisions and priorities. And Steve has an open door policy," he added. "He talks regularly with his executive committee."
Credit Suisse analyst Gary Balter agrees that Odland’s success is partly down to his ability to look at all three divisions separately. "What he has been able to do with this company is kind of look at the three divisions," he said at the Credit Suisse conference. "We’re seeing strategic investments. There’s still a lot of upside to this company and its earnings, and we think we have the right person to deliver that upside."
One mammoth achievement is Odland’s progress in stabilising Depot’s international business, a division that has remained challenging due to economic profitability, pricing pressures and a competitive landscape. Last quarter, the company broke into positive growth territory by growing its European business 2 percent in local currencies, as it restructured its sales function and added new salespeople.
During Q1, Depot also acquired a majority stake in ODP Israel and Best Office in South Korea. And Odland revealed that the company continues to look at more expansion opportunities, particularly in the areas of the world where economies are still liberalising. "Obviously there are a lot of expansion opportunities to look at," he said. "The growth in small business is booming in areas like China and India. This creates some long-term opportunities for us."
Buckingham’s Binder added: "The international division performance was a particular bright spot as turnaround efforts are beginning to take root. The company will continue to grow its international business through an increased focus on customer acquisitions (increased salesforce, telephone account management, and fostering strong selling culture), greater focus on private brands as well as through strategic acquisitions. Centralisation of marketing as well as merchandising operations and call centre consolidation remain areas of opportunity."
Without revealing too much detail, Odland is keen to emphasise that Depot’s future will see continued growth and improved profits across all divisions. And cost-cutting – through initiatives such as outsourcing, warehouse and technology consolidation, for example – will continue to feature heavily in the plan, combined with a heady mix of structural changes, new projects and acquisitions.
Shareholders are advised to stay put for a while longer yet.