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Office depot red

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This is my team's PowerPoint presentation on Office Depot for Economic Analysis of the Firm. We disagreed on the level of success the company will have as we all emerge from the recession.

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Office depot red

  1. 1. Tyler Kerner, Catherine Klasne, Tony Padilla OFFICE DEPOT: ANALYSIS AND EVALUATION
  2. 2. <ul><li>Off and running in 1986 </li></ul>A HISTORY OF OFFICE DEPOT
  3. 3. <ul><li>The first three were opened in 1986. </li></ul>OFFICE DEPOT’S GROWTH IN NUMBER OF STORES <ul><li>Office Depot - 1986 </li></ul><ul><li>Office Depot Inc., was founded in 1986 in Florida by Pat Sher, Jack Kopkin and Stephen Dougherty </li></ul><ul><li>Opened first store in Fort Lauderdale in October </li></ul><ul><ul><ul><li>Opened two more stores by year’s end </li></ul></ul></ul><ul><li>Recorded sales of $2 million </li></ul>
  4. 4. OFFICE DEPOT IN 1987 <ul><li>Appointed David I. Fuente Chairman and Chief Executive Officer </li></ul><ul><li>Sales of $34 million </li></ul><ul><li>10 stores in Florida and Georgia </li></ul><ul><li>800 employees </li></ul>
  5. 5. OFFICE DEPOT - LATE ’80S <ul><li>1988 </li></ul><ul><li>Initial public offering of common stock completed on June 1, 1988. Listed on the NASDAQ under the symbol &quot;ODEP.“ Employee Stock Option Plan adopted. </li></ul><ul><li>Sales of $132 million </li></ul><ul><li>26 stores in seven states; 1,600 employees. </li></ul><ul><li>1989 </li></ul><ul><li>Sales of $315 million </li></ul><ul><li>67 stores in 12 states </li></ul><ul><li>3,500 employees </li></ul>
  6. 6. OFFICE DEPOT - 1990 <ul><li>Merged with Office Club, Inc., on December 20 </li></ul><ul><li>Introduced Office Depot private label credit card </li></ul><ul><li>Opened 100th store in September </li></ul><ul><li>Began selling personal computers and peripherals </li></ul><ul><li>Introduced extensive line of recycled paper products, initiating company's environmental focus </li></ul><ul><li>Opened first delivery center </li></ul><ul><li>Sales of $626 million </li></ul><ul><li>5,600 employees as of February 28 </li></ul>
  7. 7. OFFICE DEPOT - 1993 <ul><li>Entered the contract stationer business via the acquisition of Wilson Stationery & Printing Co. and Eastman Office Products Corp. </li></ul><ul><li>Miami Herald names Office Depot the Company of the Year in April </li></ul><ul><li>Adopted corporate social responsibility program </li></ul><ul><li>Established Office Depot Foundation to assist employees and members of the community at large in times of extreme hardship </li></ul><ul><li>Sales of $2.6 billion </li></ul><ul><li>351 stores in North America </li></ul><ul><li>20,000 employees </li></ul>
  8. 8. OFFICE DEPOT - 1994 <ul><li>Acquired six additional contract stationers in North America </li></ul><ul><li>Went international by opening licensed Office Depot stores in Israel and Colombia </li></ul><ul><li>Announced retail joint venture agreement in Mexico and licensing agreement in Poland </li></ul><ul><li>Launched sports and event marketing programs around the country </li></ul><ul><li>Raised more than $1 million for its charities </li></ul><ul><li>Sales of $4.3 billion </li></ul><ul><li>420 stores in North America </li></ul><ul><li>26,000 employees </li></ul>
  9. 9. OFFICE DEPOT - 1995 <ul><li>500th store opened in North America </li></ul><ul><li>Opened stores in Mexico and Poland </li></ul><ul><li>International expansion in France and Thailand </li></ul><ul><li>Established Office Depot's Business Services Division </li></ul><ul><li>Introduced Arnold Palmer as the Company's spokesperson </li></ul><ul><li>Introduced a Regional Vendor Diversity Initiative </li></ul><ul><li>Sales of $5.3 billion </li></ul><ul><li>30,000 employees </li></ul>
  10. 10. OFFICE DEPOT - MID-’90S <ul><li>1996 </li></ul><ul><li>Pioneered its first B2B e-commerce site </li></ul><ul><li>Sales of $6 billion </li></ul><ul><li>570 stores in North America; 31,000 employees </li></ul><ul><li>1997 </li></ul><ul><li>Opened 21 new foreign locations, ending year with 45 international locations in eight countries, excluding Canada </li></ul><ul><li>Designed the first public website to offer the convenience of &quot;point and click&quot; for office supplies needs </li></ul><ul><li>Dilbert TM introduced as new print and broadcasting icon – online, too </li></ul><ul><li>Sales of $6.7 billion </li></ul><ul><li>602 stores in North America; 35,000 employees </li></ul>
  12. 12. OFFICE DEPOT - 1998 <ul><li>Merged with Viking Office Products, direct marketer in Europe and Australia </li></ul><ul><li>By end of year, owned and operated 15 stores in France and had 72 Office Depot locations in Colombia, Hungary, Israel, Japan, Mexico, Poland and Thailand through joint venture or international licensing agreements </li></ul><ul><li>Over $1 billion in international sales </li></ul><ul><li>Over 100 new store openings in North America, highest in the company's history </li></ul><ul><li>North American Retail stores sales exceed $5 billion </li></ul><ul><li>Launched public website officedepot.com in January </li></ul><ul><li>E-commerce sales totaled $66.5 million </li></ul><ul><li>Sales of nearly $9 billion (8.99) </li></ul><ul><li>702 stores in North America </li></ul><ul><li>44,000 employees </li></ul>
  13. 13. OFFICE DEPOT - 1999 <ul><li>Sales exceed $10 billion, first in office supply industry to reach this milestone </li></ul><ul><li>Office Depot is included S&P 500 listing in June </li></ul><ul><li>Internet Retailer . Office Depot ranked &quot;Top 25 of the Web&quot; </li></ul><ul><li>Fortune Magazine . Office Depot named as one of &quot;10 Companies that Get It&quot; </li></ul><ul><li>Sales of $10.3 billion </li></ul><ul><li>825 stores in North America </li></ul><ul><li>48,000 employees </li></ul>
  14. 14. OFFICE DEPOT - EARLY 2000 S <ul><li>2000 </li></ul><ul><li>Appointed Bruce Nelson CEO </li></ul><ul><li>Adopted strong commitment to corporate values of Respect for the Individual, Fanatical Customer Service and Excellence in Execution. </li></ul><ul><li>Sales of $11.6 billion; 888 stores in N. America; 48,000 employees </li></ul><ul><li>2001 </li></ul><ul><li>Acquired 4Sure.com </li></ul><ul><li>$1.6 billion in worldwide e-commerce sales </li></ul><ul><li>Inaugurated National Backpack Program for underprivileged children </li></ul><ul><li>Sales of $11.2 billion; 859 stores in North America; 45,000 employees </li></ul>
  15. 15. OFFICE DEPOT - 2002 <ul><li>$2.1 billion in worldwide e-commerce sales </li></ul><ul><li>Expanded into Central America with new retail stores in Guatemala and Costa Rico through a joint licensing agreement </li></ul><ul><li>Sponsorship of 2002 and 2004 U.S. Olympic Team announced </li></ul><ul><li>Won naming rights for the sports and entertainment center in Sunrise, FL. Office Depot Center became the official home of the NHL Florida Panthers </li></ul><ul><li>Sales of $11.4 billion </li></ul><ul><li>861 Stores in North America </li></ul><ul><li>43,000 employees </li></ul>
  16. 16. OFFICE DEPOT - 2003 <ul><li>Acquired Guilbert S. A., a leading contract stationer, doubling the size of the company's European business </li></ul><ul><li>First office supply superstore to offer fully-functional and comprehensive Spanish website </li></ul><ul><li>Number two global online retailer with sales of $2.6 billion </li></ul><ul><li>Implemented Ink and Toner Recycling program in stores nationwide; introduced &quot;Green Book&quot; Catalog </li></ul><ul><li>BusinessWeek magazine listed Office Depot among the top corporate philanthropists in the U.S. </li></ul><ul><li>Sales of $12.4 billion </li></ul><ul><li>900 stores in North America </li></ul><ul><li>46,000 employees </li></ul>
  17. 17. OFFICE DEPOT - 2004 <ul><li>Appointed Neil Austrian interim Chairman and CEO </li></ul><ul><li>Launched first free, nationwide in-store electronics recycling program and free, in-store cell phone and rechargeable battery recycling program in the U.S. and Canada </li></ul><ul><li>State of Florida, Office of Supplier Diversity- Corporation of the Year. </li></ul><ul><li>Powered 20 retail stores with renewable &quot;Green Power&quot; to reduce greenhouse gas emissions </li></ul><ul><li>Listed on Companies That Care Honor Roll </li></ul><ul><li>Sales of $13.6 billion </li></ul><ul><li>969 stores in North America </li></ul><ul><li>47,000 employees </li></ul>
  18. 18. OFFICE DEPOT - 2005 <ul><li>Steve Odland appointed Chairman and CEO </li></ul><ul><li>Named Official Office Products Partner of NASCAR; sponsored the No. 99 Office Depot Roush Racing Car </li></ul><ul><li>Relaunched the Taking Care of Business tagline </li></ul><ul><li>Opened 1,000th store </li></ul><ul><li>Listed on Companies That Care Honor Roll </li></ul><ul><li>Sales of $14.3 billion </li></ul>
  19. 19. OFFICE DEPOT - MID-2000 S <ul><li>2006 </li></ul><ul><li>Announced $4.5 million in contributions to higher education </li></ul><ul><li>Sales of $15 billion; 1,158 stores; 50,000 employees </li></ul><ul><li>2007 </li></ul><ul><li>Opened first store in Puerto Rico </li></ul><ul><li>Opened new Global Sourcing Office in Shenzhen, China </li></ul><ul><li>Named to the EPA's list of the Top 10 Retail Partners in the Green Power Partnership </li></ul><ul><li>Sales of $15 billion; 1,222 stores; 50,000 employees </li></ul>
  20. 20. OFFICE DEPOT - 2008 <ul><li>Introduced &quot;Office Depot Green&quot; product line </li></ul><ul><li>Launched Office Depot Tech Trade-In Program </li></ul><ul><li>Announced alliance with Netbizz Office Supplies in Singapore </li></ul><ul><li>Formed partnership with AGE in Sweden </li></ul><ul><li>Established alliance with bigboXX.com in Hong Kong </li></ul><ul><li>Opened new facilities in Großostheim (Germany) and Zwolle (The Netherlands) </li></ul><ul><li>1,267 stores </li></ul><ul><li>Almost $15 billion in sales </li></ul><ul><li>More than 51,000 Employees </li></ul>
  21. 21. OFFICE DEPOT - 2009 <ul><li>Opened first retail store in Kuwait </li></ul><ul><li>Celebrated first season as sponsor of Tony Stewart, driver of the No. 14 Office Depot/Old Spice Chevrolet Impala SS in the NASCAR Sprint Cup Series™ </li></ul><ul><li>Expanded line of digital cameras, writing instruments and specialty papers </li></ul><ul><li>Announced new assortments of teaching products and plastic storage solutions </li></ul><ul><li>1,152 stores, over $12 billion in sales; more than 41,000 employees </li></ul>
  27. 27. OFFICE DEPOT - STOCK SPLITS May-92 2: 1 Stock Split June-93 3: 2 Stock Split June-94 3: 2 Stock Split April-99 3: 2 Stock Split
  28. 28. OFFICE DEPOT - CURRENT STOCK PRICE <ul><li>OPD - $4.95 </li></ul><ul><li>Average volume over 6 million shares per day </li></ul><ul><li>52-week range: 3.36 – 9.19 </li></ul>
  29. 29. <ul><li>Office Supply Sector </li></ul>ANALYSIS OF THE INDUSTRY
  30. 30. <ul><li>The market structure in which the firm operates: An oligopoly of large international retail-chain businesses that offer: </li></ul><ul><li>general office supplies </li></ul><ul><li>technology products </li></ul><ul><li>office furniture </li></ul><ul><li>and services </li></ul><ul><li>to the public through its retail stores </li></ul><ul><li>to other businesses through one or more divisions </li></ul><ul><li>and, in some cases, to schools. </li></ul>MARKET STRUCTURE
  31. 31. <ul><li>Office Depot competitor and industry leader Staples, Inc., places itself among 21 peers – which it reviews every three years. They are retailers with which the company competes for customers or executives. </li></ul>THE LARGER UNIVERSE
  32. 32. <ul><li>Similarly, OfficeMax illustrates its relationship with other office supply superstores and other retailers, which their investor report calls “niche players.” </li></ul>MAJOR COMPETITORS ARE OBVIOUS IN THIS GRAPHIC.
  33. 33. <ul><li>This slide, part of a 2010 Office Depot shareholder presentation, shows how the Office Supply Sector fits into the overall U.S. office supplies market. </li></ul>ODP : OFFICE DEPOT SPLS : STAPLES OMX : OFFICE MAX
  34. 34. <ul><li>The valuation of the office products industry at $309 billion, based on revenues, came the year the overall economy was slipping into a recession. </li></ul>CAGR: COMPOUND ANNUAL GROWTH RATE
  35. 35. <ul><li>Not surprisingly, OfficeMax relates industry sales during the recession to the employment of office workers. </li></ul>THEY TOOK A HARDER HIT THAN WORKERS OVERALL.
  36. 36. <ul><li>Competitor OfficeMax also sees an opportunity for industry growth during recovery by expanding office supply sales internationally, an area that is increasingly being explored by Office Depot. </li></ul>ALTHOUGH THE BIG THREE ARE LOOKING TO THE WORLD AT LARGE FOR OPPOR-TUNITIES, THEIR PUBLIC FACE REMAINS THEIR DOMESTIC SUPER-STORES .
  37. 37. <ul><li>Office Depot: 1,330 (144 in Florida) </li></ul><ul><li>Staples: 1,555 (97 in Florida) </li></ul><ul><li>OfficeMax: 933 (55 in Florida) </li></ul>NUMBER OF STORES IN THE U.S.
  38. 38. <ul><li>A merger between Office Depot and Staples was denied by the FTC in 1997 because, it said, the HHI value would exceed 5000 in 42 metropolitan areas for office supply superstores after the merger. </li></ul><ul><li>The U.S. Justice Department considers a value over 1800 for any industry to indicate their market is highly concentrated. </li></ul><ul><li>Overall, we estimate the HHI for office supply superstores to be about 4300 and calculate the individual scores of the big three to be: </li></ul>HERFINDAHL-HIRSCHMAN INDEX
  40. 40. <ul><li>Exploring direct sourcing </li></ul>UNIQUE CHARACTERISTICS OF SUPPLY:
  41. 41. <ul><li>In its own 2009 annual report, Office Depot mentions it is expanding the categories of products it sources and countries it utilizes. </li></ul>UNIQUE CHARACTERISTICS OF SUPPLY One “initiative to increase profitability involves direct sourcing, whereby retailers purchase goods directly from suppliers and cut out any middlemen. … Office Depot and Staples are very competitive in this regard, with about one-fifth of all goods sold coming from respective private labels.” -- wikinvest.com
  42. 42. <ul><li>3 Words: Back to School </li></ul>SEASONALITY OF SALES
  43. 43. 2010: SLIGHT RECOVERY
  44. 44. <ul><li>“ Promotions played a significant role in the marketing of OP suppliers. And although results were a little mixed during the bid to drive early traffic in July, promotions did play their part in the strong September.” </li></ul><ul><li>-- OPI Magazine </li></ul>AS BTS GOES, SO GOES THE YEAR
  45. 45. <ul><li>The intense competition from other retailers in areas such as electronics makes this traditionally busy time second to BTS. </li></ul>HOLIDAY SEASON
  46. 46. <ul><li>Sales & profits, demand factors, investor analysis </li></ul>OFFICE DEPOT: FINANCIAL ASPECTS
  47. 47. <ul><li>Historical & </li></ul><ul><li>Current </li></ul>SALES & PROFITS
  48. 48. SALES HISTORY Strong historical revenue growth until recent downturn in economic conditions
  49. 49. <ul><li>Revenue (Year-over-Year) </li></ul><ul><li>Total company sales of $2.9 billion decreased 4% vs Q3 2009 </li></ul><ul><li>Year over year sales change improving in recent quarters </li></ul><ul><li>Profit (Year-over-Year) </li></ul><ul><li>Fifth consecutive quarter of year-over-year margin improvement </li></ul>SALES & PROFIT ANALYSIS
  50. 50. <ul><li>Strategic Initiatives </li></ul><ul><ul><li>Offering exciting new assortment in technology </li></ul></ul><ul><ul><li>Increasing brand awareness using direct mail and broadcast media </li></ul></ul><ul><ul><li>Nationwide rollout of U.S. Postal Service offerings in retail stores </li></ul></ul><ul><ul><li>Increased marketing of Copy and Print Depot and Tech Depot services </li></ul></ul><ul><ul><li>New point-of-sale system to provide customer recognition, including Worklife Rewards Members </li></ul></ul><ul><ul><li>Integrating marketing efforts with BSD’s Direct business to reach small business </li></ul></ul>NORTH AMERICAN RETAIL DIVISION
  51. 51. <ul><li>Strategic Initiatives </li></ul><ul><ul><li>Implementation of large market business development teams </li></ul></ul><ul><ul><li>Stronger focus on National Account business development </li></ul></ul><ul><ul><li>Continued focus on growth in the small-to medium-sized business customer space </li></ul></ul><ul><ul><li>Continued growth in the Federal Government sector </li></ul></ul><ul><ul><li>Adding sales resources in the area of cleaning and break room supplies </li></ul></ul><ul><ul><li>Continuing growth and increasing momentum in Copy and Print business </li></ul></ul><ul><ul><li>Launching new marketing programs and loyalty programs </li></ul></ul>NORTH AMERICAN BUSINESS SOLUTIONS
  52. 52. <ul><li>Strategic Initiatives </li></ul><ul><ul><li>Focused on winning new customers by refining business model to become more customer centric, with better segmentation, refined and coordinated contacts, refreshed branding, improved pricing and more robust e-commerce tools </li></ul></ul><ul><ul><li>Replacing analog equipment with voice over IP digital telephony in all our major European markets. This will allow automated call distribution solutions to route incoming service requests to the first available agent with the appropriate skill set </li></ul></ul><ul><ul><li>Increasing Office Depot’s global reach and capitalizing on market opportunities </li></ul></ul>INTERNATIONAL DIVISION
  53. 53. <ul><li>Economic Indicators & Cost-Cutting Measures </li></ul>DEMAND FACTORS & IMPACTS
  54. 54. <ul><li>Macro </li></ul><ul><li>Economic Indicators </li></ul>DEMAND DRIVERS <ul><li>North American Retail and Business Solutions </li></ul><ul><ul><li>Office Depot’s U.S. business tracks closely with a number of macro economic metrics </li></ul></ul><ul><li>International demand drivers </li></ul><ul><ul><li>Impacts of foreign exchange translation </li></ul></ul>
  55. 55. ELASTICITY <ul><li>Office Depot elasticity is theorized to be >1. </li></ul><ul><li>There are many competitors </li></ul><ul><li>Easy for buyer to go elsewhere </li></ul><ul><li>Ease of entry into the marketplace </li></ul>
  56. 56. <ul><li>Capital Spending </li></ul><ul><ul><li>2010 capital expenditures will be allocated in order to fund ongoing maintenance and other investments needed to drive strategic plan and improve return on investment </li></ul></ul><ul><li>Created a Business Process Improvement (BPI) Organization </li></ul><ul><ul><li>Currently identified $80 million of cost savings opportunities from indirect spend reductions, finance process improvements and IT integration </li></ul></ul><ul><ul><li>Identified working capital reduction opportunities of about $50 million </li></ul></ul><ul><ul><li>Targeting a $100 million cost savings annual run rate by late 2013 </li></ul></ul><ul><li>Supply chain initiative </li></ul><ul><ul><li>Automated order fulfillment is more productive, accurate and flexible than other warehouse automation </li></ul></ul>COST CUTTING EFFORTS
  57. 57. <ul><li>Sales Mirror Economic Recovery </li></ul>INVESTOR ANALYSIS
  59. 59. <ul><li>Investor Projections </li></ul><ul><ul><li>Expect sales to rise 1.3% in 2011, following a projection of a 3.9% decline in 2010 </li></ul></ul><ul><ul><li>Project a slight widening of gross margins in 2011, reflecting inventory optimization and increased private label sales, slightly offset by a product mix shift to lower-margin goods </li></ul></ul><ul><ul><li>We think the loss of market share and macrorelated challenges have created an overhang of uncertainty, as has the recent departure of the firm's chairman and CEO </li></ul></ul>INVESTOR OUTLOOK