Office Depot 2001 Annual Report Download - page 4

hen I accepted leadership of Office Depot 20
months ago, our Company faced significant chal-
lenges. Growth in the U.S. office supply superstore
industry was beginning to mature and we had not responded
effectively to the changing competitive environment. We had
lost sight of some of our core competencies and competitive
advantages, and we had allowed parts of our business to
become too complex and inefficient. We had been slow to
address issues in underperforming businesses and assets.
Worst of all, our Company and our management team had
lost the loyalty of our shareholders and the confidence of
our employees, who viewed our direction as unclear and
our future as uncertain. •These challenges became even
more daunting in 2001, as we faced a weak U.S. economy;
softness in the computer hardware,
software and furniture sectors; unfavorable
foreign currency translation; and declining
consumer confidence. As our delicate econ-
omy teetered on the brink of recession, the
tragic events of September 11th gave the
final push that sent it over the edge, creat-
ing a difficult, stormy and uncertain eco-
nomic environment.
Turning the Tide
Our efforts to strengthen Office Depot
started in early fall of 2000, when our new
leadership team conducted a critical assess-
ment of Office Depot that redefined our
destination and plotted a strategic course to
get there. Throughout 2001, we continued
this process, driving operating improve-
ments that we expect to yield tangible
results in the years ahead. •Our initiatives
were careful and thorough. We sharpened our focus on our core
competencies. We improved efficiencies and instituted disci-
plined capital spending. We introduced dramatic improvements
in the management of our supply chain, our inventory, and
our warehouse operations. We closed stores, cut costs in
underperforming regions in North America and redeployed
capital to our highly profitable and fast-growing international
markets. We elevated the delivery of “fanatical” customer
service to our first priority, and we established quality indices
and ambitious new performance benchmarks. We fostered a
management culture that gives our leaders and managers
greater responsibility and makes them accountable for results.
And we established new corporate values that form the basis
for the way we do business and serve as a foundation for our
future. •We also devoted significant energy and resources to
making Office Depot a more compelling place to work and
shop. We improved opportunities across the Company for our
employees, and we tied recognition and reward directly to per-
formance. We renewed our commitment to diversity, which
appropriately reflects our diverse customers, suppliers and
communities in which we live and work. We undertook new
measures in our North American Retail stores to make shop-
ping at Office Depot a more informative and customer-friendly
experience by remerchandising, upgrading and resigning all
859 of our retail superstores. •These collective management
and operating initiatives enabled Office Depot to perform well
in light of the difficult economic environment. Total sales
declined four percent to $11.2 billion, compared with $11.6
billion in 2000. Comparable worldwide sales in the 849 stores
and 39 delivery centers that have been open for more than one
year declined two percent, compared with an increase of seven
percent in 2000. At the same time, however, our highly prof-
itable International business delivered to record sales and profits,
despite negative foreign currency translation. International now
accounts for 27 percent of our Company’s total segment operat-
ing income. Driven by a dramatic improvement in gross margins
across our business segments, earnings per share (excluding
charges and credits discussed in management’s discussion and
analysis), rose to $0.79, an increase of 13 percent, compared
with $0.70 in 2000. Free cash flow rose to $540 million,
2
We are encouraged by
Office Depot’s progress
in 2001, and we firmly
believe it demonstrates
the strength of our
Company’s true
earnings potential.
W
To Our Shareholders: