Good question. With the high drama and unpredictability of a bad soap opera, Sensormatic (NYSE-SRM) has endured a litany of management and marketplace miscues that have tested Wall Street's patience and left competitors wringing their hands in delight. And to be sure, 1997 was no blip on the company screen. About two years earlier an external audit revealed widespread accounting irregularities (prompting the shareholder suit), and in 1996 the company was forced to take a $186 million write-off for restructuring charges.
Vanourek, recruited in October 1995 to help tighten the ship, attributes the company's foundering to runaway growth during a boom time for the electronic-security industry. Sensormatic found a niche making and marketing anti-theft systems for retailers, and little more than a decade ago, explains Vanourek, it was a $50 million-a-year company. But after posting seven consecutive years of both higher sales and earnings, the company is now doing more than $1 billion a year. "We outgrew our computers and control systems, and in some cases our managers," admits Vanourek.
If Sensormatic's condition is indeed a result of growing pains rather than of a more debilitating illness, Vanourek's prescription may be a relatively painless cure: a redefined corporate culture that values openness, accountability and honesty -- three qualities that insiders say were sorely lacking during the company's high-growth years.
Vanourek now spends much of his time trying to convince analysts and shareholders that the company's commitment to change is sincere. He talks of "LITE," a new company acronym for "leadership, integrity, teamwork and excellence," and points proudly to a new company symbol, Q3, emblazoned cryptically on business cards, corporate brochures and bulletin boards around the sprawling corporate headquarters. The "Q" is for quality -- products, services and growth -- and the "3" is for people -- customers, employees and shareholders.
Some veteran employees say the culture change is making a difference. "There's much more openness, candor, both inside and outside the company," says, one mid-level official, following his statement with a somewhat ironic request to remain anonymous. "In the past, people did their jobs, but nobody was really sure what else was happening around them. That's when the trouble started."
Other, more tangible, changes also have occurred. Since the accounting troubles first surfaced, the entire finance department has been replaced. The company is selling off nine "non-core" business units, and it streamlined its European operation by reorganizing along regional rather than national markets. For example, 29 European warehouses are being consolidated into three, and more than 300 jobs there have been eliminated. Sensormatic also is shifting away from its United Kingdom market strategy of targeting smaller retailers. "Europe is a mature market, and I think our approach there may not have been the right one," says Vanourek. In 1997 Europe accounted for 35%, or $388 million, of revenues, down from $417 million a year earlier.
But not everyone is convinced that Sensormatic is a company reborn. H.D. Brous & Co. analyst Howard Rosencrans -- arguably the company's harshest critic -- says Sensormatic's high-profile make-over has done little to address the company's most pressing concerns: weak management and aggressive competition. To begin with, Rosencrans asks, why is company founder Ronald Assaf, who led the company during its darkest days, still serving as board chairman? "Until he's gone, the company won't have much credibility on Wall Street," Rosencrans insists.
Selling short
He also blames Vanourek for Sensormatic's troubles, accusing him of "decimating the balance sheet" over the past two years with write-offs (totaling more than $250 million) and the pricey shareholder-suit settlement. Rosencrans reports that as of September Sensormatic's tangible equity stood at $222 million, down 35% from five quarters earlier. The weak financial footing, he argues, has prevented Sensormatic from matching the aggressive marketing strategy of its chief competitor, Checkpoint Systems of Thorofare, N.J.
Rosencrans says much of the company's recent sales has been to existing customers switching over from old technology to Sensormatic's new UltraMax system. Such sales may be misleading, he says, because they do not represent new customers choosing Sensormatic's products over Checkpoint's. Sensormatic officials acknowledge the switch-over sales but disregard Rosencrans' assumptions, noting that H.D. Brous, based in Great Neck, N.Y., has been a short-seller in Sensormatic. Rosencrans would love nothing more, they argue, than to see the company's stock price continue falling.
In any event, critics of Sensormatic insist, the bottom line doesn't lie. The company's fiscal 1997 operating income of $51 million (excluding write-offs) was virtually unchanged from a year earlier. Revenues in 1997 reached $1.02 billion, up only 3.1% from 1996.
But Vanourek remains undaunted. He shrugs off any suggestion that Assaf should be dumped from the board, noting that voting shareholders seem content with his performance. Despite the company's rocky performance, he insists, in his calm, unruffled manner, that Sensormatic has tremendous market presence within a high growth industry. "We do business with 96 of the world's top 100 retailers," he says. "I think we're going to be pretty well positioned once we work out all the problems." Increasingly, Vanourek says, Sensormatic's product line will move beyond the anti-shoplifting systems that long have carried his company. Indeed, such systems now account for only 52% of total revenues. Sensormatic also manufactures access control equipment, security cameras and inventory tracking systems. "Our future will be in wireless sensing and tracking systems that go beyond electronic security," Vanourek predicts. "Our customers will be able to track their trucks, their lap tops and even children's shoes. They'll be able to track their customers, knowing when they go shopping and what they buy."
Edward Tavlin, an analyst with Hallandale-based Fahnestock & Company, likes Vanourek's vision. "They had a bit of a false start," Tavlin says of Vanourek's first few months at the helm, "but I think they're on the road to recovery." Tavlin notes that receivables are down and inventories are under better control. He points to a $20 million contract with German drugstore chain Karstadt as evidence of Sensormatic's strengthened presence in Europe following the restructuring. The company signed on another drugstore chain, Canada's Le Groupe Essaim, in December.
Whether Vanourek can put Sensormatic's troubles behind it remains to be seen. The Securities and Exchange Commission has yet to conclude its probe of accounting irregularities and alleged insider trading; dividends remain suspended. But if he succeeds, his reputation as a corporate miracle worker will be secure. In his previous post, as CEO of Dallas-based Recognition International Inc., he steered a company beset with troubles through a Justice Department investigation, a shareholder suit and back to profitability. "The challenges (at Sensormatic) have sure been greater than anyone could have imagined," he smiles. "But they're nothing I haven't seen before.