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OfficeMax's New Strategy Isn't Exactly New

We believe the office product distributor's fundamentals will deteriorate over time.

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We had thought the five-year strategic plan that OfficeMax (OMX) issued in March 2010 was reasonable, but the firm has since failed to achieve revenue growth and meaningful margin expansion. Now management has presented an updated strategy to address the company's challenges. While OfficeMax has outlined a plan to reach multiyear sales growth and margin goals, we remain skeptical that it can overcome industry headwinds and compete effectively with leader Staples (SPLS) and nontraditional competitors like Wal-Mart (WMT) and Amazon (AMZN). OfficeMax's new strategy does not strike us as being meaningfully different than the prior plan, and we view the shares of this no-moat firm as overvalued.

OfficeMax has taken steps to address lagging sales and profits the past several years. First the firm reorganized and streamlined management, which should improve the decision-making process. Next it enhanced its contract website by refining pricing, automating its salesforce, and upgrading its call centers in order to differentiate from Staples (which is the number-two online shopping site behind Amazon). However, OfficeMax hasn't reported an increase in net sales since 2007, and its adjusted operating margin remains well below that of Staples.

Joscelyn MacKay does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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