OfficeMax Inc.
(
OMX
), a leading distributor of office supplies and paper, print and
document services, technology products and solutions, as well as
office furniture, posted its second-quarter 2012 results on
Thursday, August 2, 2012. Here we will discuss the company's
scorecard based on the recent announcement of its earnings,
subsequent estimate revisions by analysts as well as the Zacks Rank
and long-term recommendation for the stock.
Last Quarter Synopsis
OfficeMax posted better-than-expected second-quarter 2012
results. Its quarterly earnings of 12 cents a share surpassed the
Zacks Consensus Estimate by 5 cents and also improved substantially
from 7 cents earned in the prior-year quarter, on the back of
effective cost management.
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
million.
This office supplies retailer now expects third-quarter sales to
remain even with or marginally higher compared with 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.
(Read our full coverage on this earnings report:
OfficeMax Beats on Bottom Line
)
Agreement of Estimate Revisions
For the third-quarter 2012, out of 10 estimates, five were
revised upwards while three went down. However, for the
fourth-quarter 2012, only one estimate went up and four estimates
were trimmed in the last 7 days.
As for fiscal-year 2012 and 2013, the estimates were
unidirectional, reflecting seven estimates (out of 10) and six
estimates (out of 9) moving up, respectively, in the last 7
days.
What Drives Estimate Revisions
Following the company's strong second-quarter 2012 financial
results, most of the estimates were revised upwards for the
upcoming quarter.
OfficeMax's solid second quarter 2012 results on the back of
cost containment efforts and improved gross margins, compelled the
analysts to increase their estimates. Moreover, the company's
announcement of paying out dividend, after a pause of three and a
half years, signified OfficeMax's ability to generate free cash
flow. This impressed the analysts to a great extent.
However, Retail segment sales fell 5.7% to $723.6 million,
reflecting a decline of 1.8% in comparable-store sales due to lower
store transactions and adverse impact of foreign currency
translation. The U.S. comparable-store sales fell 1.3%.
Subsequently, some of the analysts remained on the back foot.
For fiscal year 2012, positive sentiment among the analysts was
palpable, following management's expectation of cash flow from
operations to exceed capital expenditure, which is projected to be
approximately $75 million to $85 million for the year. With respect
to guidance, the company now expects fiscal 2012 sales to be flat
and operating margin to be in line with or slightly higher than
1.7% rate attained in the prior year.
Moreover, OfficeMax is repositioning itself to stay afloat in a
difficult consumer environment. The company is containing costs,
closing underperforming stores and focusing on providing innovative
products and services, which should contribute to margin
improvements.
The company should gain from recent growth initiatives, which
include the ImPress copy and print and Ctrlcenter PC services,
janitorial and sanitation supply, category management, and managed
print businesses. The company's digital as well as technology and
document solutions are also gaining traction, which, we believe,
will continue in the long term. Therefore, the analysts remained
positive for the coming years.
Magnitude of Estimate Revisions
The Zacks Consensus Estimate for the third quarter of 2012
remained unchanged at 25 cents in the last 7 days. However, for the
fourth quarter, earnings fell by a penny to 13 cents per share, in
the last 7 days.
For the fiscal year 2012 and 2013, the Zacks Consensus Estimate
improved by 5 cents and 3 cents to 73 cents and 79 cents,
respectively, in the last 7 days.
Conclusion
The company is focused on the issue of optimal store site in
order to boost store productivity. OfficeMax intends to focus more
on improving sales per square foot through an increase in 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, removal of
viruses, etc.
However, OfficeMax faces stiff competition from office supply
retailers, such as
Office Depot Inc.
(
ODP
) and
Staples Inc.
(
SPLS
), and wholesale clubs, discount stores, mass merchandisers,
computer and electronics superstores on attributes such as store
format, pricing strategy and in-stock consistency. This may weigh
upon the company's results.
Consequently, we maintain our long-term 'Neutral' recommendation
on the stock. However, OfficeMax carries a Zacks #2 Rank implying
short-term Buy rating for the next 1-3 months.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two
of the most celebrating stock rating systems in use today. The
Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months).
These "Earnings Estimate Scorecard" articles help analyze the
important aspects of estimate revisions for each stock after
their quarterly earnings announcements. Learn more about earnings
estimates and our proven stock ratings at
http://www.zacks.com/education
OFFICE DEPOT (ODP): Free Stock Analysis Report
OFFICEMAX INC (OMX): Free Stock Analysis Report
STAPLES INC (SPLS): Free Stock Analysis Report
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