OfficeMax Inc. (OMX”>OMX) recently posted better-than-expected second-quarter 2011 results. The quarterly earnings of 7 cents a share outpaced the break-even estimate according to the Zacks Consensus, but dropped 41.7% from 12 cents earned in the year-ago quarter. The company in order to check the fall in its bottom line has been managing its costs effectively.
On a reported basis, including one-time items, the company delivered a loss of 4 cents a share substantially down from earnings of 14 cents in the prior-year quarter.
Behind the Headline
Total sales fell marginally by 0.3% to $1,647.6 million from the same-quarter last year, reflecting a tough macro-economic environment ,but was ahead of the Zacks Consensus Estimate of $1,642 million.
The office supplies retailer now expects third-quarter 2011 sales to be flat versus the comparable period, and informed that sales for the second half of 2011 will be marginally higher compared with the year-ago period. Both include the positive impact of foreign currency translation.
The recovery in the economy still lacks luster. As a result, consumers and small businesses still remain wary about their spending. The demand for office products is closely tied to the health of the economy. However, better-than-expected results brought some respite to the dwindling hopes of investors.
OfficeMax notified that gross profit dipped 0.6% to $425.1 million, whereas gross profit margin contracted 10 basis points to 25.8%. Adjusted operating income for the quarter dropped 29.2% to $17.9 million, whereas adjusted operating margin shriveled 40 basis points to 1.1%.
Management now expects adjusted operating margin for the third quarter and fiscal 2011 to be in line or marginally higher compared with the respective year-ago periods.
Segment Discussion
OfficeMax Contract segment sales remained flat at $880.3 million in the quarter. The segment witnessed a decline of 2.6% in Contract operations sales in the U.S. but an increase of 5.7% in Contract operations sales in international markets. Segment sales tumbled 3.5% in constant currency. Segment gross profit margin contracted 40 basis points to 22.3%.
OfficeMax Retail segment sales dropped 0.7% to $767.3 million, reflecting a 0.5% decline in comparable-store sales. The fall in the U.S. comps was partially offset by healthy sales in Mexico. Segment gross profit margin expanded 40 basis points to 29.9%.
At the end of the quarter, OfficeMax operated 983 retail stores, comprising 904 retail stores in the U.S. and 79 retail stores in Mexico. During the quarter under review, the company closed 8 retail stores in the U.S. For fiscal 2011, OfficeMax now plans to open 8 to 10 stores in Mexico, and plans to open 1 store and close 20 locations in the U.S.
Other Financial Details
OfficeMax ended the quarter with cash and cash equivalents of $458.3 million, total long-term debt of $274.1 million and shareholders’ equity of $651.1 million. Capital expenditures for the quarter were $11.2 million. Management now expects capital expenditures of approximately $75 million in fiscal 2011. During the first half of fiscal 2011, the company generated cashflows of $26.7 million from operating activities.
Currently, OfficeMax, which competes with Office Depot Inc. (ODP”>ODP) and Staples Inc. (SPLS”>SPLS), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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