Buoyed by impressive second-quarter 2012 results and strategies
undertaken to reposition itself in an economy that still lacks
luster, we have adopted a bullish stance on
). We upgrade our recommendation to Outperform from Neutral with a
target price of $9.00.
OfficeMax provides office supplies and paper, print and document
services, technology products and solutions as well as office
furniture to business firms, government organizations and other
Healthy Bottom Line Result
Amidst a tough economic environment, OfficeMax posted
better-than-expected second-quarter 2012 results. The quarterly
earnings of 12 cents a share surpassed the Zacks Consensus Estimate
by 5 cents and rose substantially from 7 cents earned in the
prior-year quarter, on the back of effective cost management. The
company also reinitiated its quarterly dividend of 2 cents a share
after suspending it three and a half years ago.
However, total sales dropped 2.7% to $1,602.4 million year over
year, and also fell short of the Zacks Consensus Estimate of $1,638
The office supplies retailer now expects third quarter sales to
remain even with or marginally higher than the prior-year period,
including the adverse impact of foreign currency translation. Sales
for fiscal 2012 are projected to be flat with the prior year,
including the negative impact of foreign currency translation and
excluding the extra week in 2011, which resulted in incremental
sales of about $86 million.
Company's Strategies to Stay Afloat
As the recovery in the economy still remains sluggish, consumers
and small businesses remain frugal about big-ticket spending like
business machines and other durables. Therefore, we believe that
the demand for office products is closely tied to the health of the
Consequently, OfficeMax is repositioning itself to stay afloat
amidst a difficult consumer environment. The company is containing
costs, closing underperforming stores and focusing on innovative
products and services, which should all contribute to margin
improvements. Further, the company anticipates regaining operating
margins of over 3.8% by 2015.
Additionally, the company focuses on optimal store sites in
order to boost store productivity. Moreover, OfficeMax is committed
to improve sales per square foot by increasing customer traffic and
converting them into potential buyers by targeted advertising,
ongoing sales training and customer-oriented initiatives. The
company has initiated control center technology services to assist
customers with PC maintenance or removal of viruses.
As part of its strategic retail partnership initiative,
OfficeMax commenced a pilot program with
) in January 2012, under which the employees of the latter are
selling mobile products and accessories and offering services in
some of OfficeMax stores in San Francisco.
On the other hand, RadioShack is helping OfficeMax to enhance
its consumer electronics offering. The initiative is assisting in
driving traffic as well as optimizing selling space
Genuine efforts are being implemented to combat the tough
economy. Business budget remains tight, consumers remain cautious
than ever before and companies are trying hard to navigate through
the challenging maze.
The above analysis supports our unbiased view, and advocates our
bullish stance on the stock. Moreover, OfficeMax, which competes
Office Depot Inc.
), holds a Zacks #2 Rank that translates into a short-term Buy
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