OfficeMax Incorporated ( OMX ) posted
fourth-quarter 2012 adjusted earnings of 16 cents a share,
marginally beating the Zacks Consensus Estimate by a penny but
waning 5.9% from 17 cents earned in the prior-year quarter.
Alongside, this Zacks Rank #2 (Buy) company decided to merge with
Office Depot, Inc . ( ODP ).
Including one-time items, the company reported a loss of 39
cents compared with earnings of 3 cents a share in the prior-year
Total sales dropped 7.4% year over year to $1,700.5 million, and
also fell short of the Zacks Consensus Estimate of $1,752 million.
However, excluding the impact related to foreign currency
translation, store plans and shift in weeks, sales declined 2.7%.
The company now forecasts sales for first-quarter 2013 to be
lower than sales of the comparable prior-year quarter, including
the favorable impact of foreign currency translation. Sales for
2013 are expected to remain even with the prior year, including the
positive impact of foreign currency translation.
OfficeMax's gross profit declined 4% year over year to $431.8
million during the quarter, while gross profit margin expanded 90
basis points to 25.4%. Adjusted operating income for the quarter
decreased 7.6% to $28.1 million, whereas adjusted operating margin
remained flat at 1.7%.
Management expects adjusted operating margin for first-quarter
2013 to be marginally lower than the prior-year quarter's 2.3%,
whereas for 2013 it is expected to remain even with 2% reported in
the prior year.
OfficeMax Contract segment sales dipped 5.3%
year over year to $885.4 million in the quarter, reflecting an 8%
decline in U.S. Contract operations sales. However, Contract
operations sales in international markets inched up 0.9% (down 2.6%
in constant currency basis). On account of increased customer
margins, Contract segment's gross profit margin strengthened 60
basis points to 22.8%. However, segment income margin shriveled 40
basis points to 2.6%.
OfficeMax Retail segment sales fell 9.5% year
over year to $815.1 million, reflecting a decline of 4.1% (in
constant currency) in comparable-store sales due to lower traffic
and sluggish sales of technology products. U.S. comparable-store
sales fell 4.6%, whereas, comparable-store sales in Mexico rose
0.4% in constant currency. Retail segment's gross profit margin
expanded 130 basis points to 28.2%, reflecting favorable sales mix
and effective promotional strategies. Segment's income margin
expanded 50 basis points to 2% during the quarter.
At the end of the quarter, OfficeMax operated 941 retail stores
- 851 in the U.S. and 90 in Mexico. During 2012, the company
opened 11 stores - 1 in the U.S. and 10 in Mexico. Moreover, the
company closed 48 stores comprising 46 in the U.S. and 2 in
For 2013, the company expects to downsize and relocate stores in
the U.S. The company plans to close 5-10 stores alongside new store
openings. Moreover, the company plans to open 6 stores in Mexico.
OfficeMax and Office Depot decided to merge their businesses in
order to better compete with the industry bellwether
Staples Inc . ( SPLS ) and online
rivals such as Amazon.com Inc. ( AMZN ).
The decision augurs well for both the companies, which have been
grappling with soft sales as business budget remains tight,
consumers and small businesses remain frugal about big-ticket
spending on items such as business machines and other durable
Looking at the numbers, the combined sales for both the
companies in the recently concluded year ended on Dec 29, 2012
stood at approximately $18 billion, whereas cash and cash
equivalents together comes at $1.2 billion.
The all-stock merger agreement, which involves 2.69 Office Depot
shares for each share of OfficeMax, would result in cost synergies
of $400 to $600 million yearly by the third year from the time of
closing of the transaction. The transaction is expected to be
concluded by the end of 2013. Management of both the companies are
yet to decide on the name of newly formed company, the location of
corporate headquarters and the CEO.
Other Financial Details
OfficeMax ended the quarter with cash and cash equivalents of
$495.1 million, long-term debt of $226 million, non-recourse debt
of $735 million and shareholders' equity of $1,034.4 million.
During 2012, the company generated cash flow of $185.2 million from
operating activities. Management expects cash flow from operations
to exceed capital expenditures in 2013.
The company incurred capital expenditures of $39 million during
the reported quarter and expects capital expenditures to be in the
range of $100-$125 million in 2013.AMAZON.COM INC (AMZN): Free Stock Analysis
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