Sluggish economic conditions coupled with reduced sales of
technology products and soft margins in the Contract business
resulted in lower-than-anticipated third-quarter 2013 results at
) that merges with
Office Depot Inc.
). The quarterly earnings came in at 15 cents a share, missing
the Zacks Consensus Estimate of 22 cents, and dropping
substantially from 25 cents earned in the prior-year quarter.
Including one-time items, this Zacks Rank #3 (Hold) company
reported earnings of 34 cents a share compared with $4.92 in the
OfficeMax posted total sales of $1,664.9 million that dropped
4.6% year over year, and also fell short of the Zacks Consensus
Estimate of $1,680 million. However, excluding the impact related
to foreign currency translation, store plans and difference in
days of business operations, sales declined 3.4%.
OfficeMax's gross profit declined 9.3% year over year to
$417.5 million during the quarter, while gross profit margin
contracted 130 basis points to 25.1%. Adjusted operating income
plummeted 33.5% to $28.4 million, whereas adjusted operating
margin declined 70 basis points to 1.7%.
segment sales dipped 4.4% year over year to $841.9 million in the
quarter, reflecting a 3.6% decline in U.S. Contract operations
sales and a 6.5% fall in Contract operations sales in
international markets (down 0.8% in constant currency basis). On
account of the decline in consumer margins in the International
Contract and the U.S. Contract, Contract segment's gross profit
margin softened 210 basis points to 20.7%. Segment income margin
contracted 200 basis points to 1%.
segment sales fell 4.7% year over year to $823 million,
reflecting a decline of 2.8% (in constant currency) in
comparable-store sales due to lower traffic and soft sales of
technology products. U.S. comparable-store sales fell 2.8%,
whereas comparable-store sales in Mexico declined 2.2% in
constant currency. Retail segment's gross profit margin
contracted 40 basis points to 29.6%. Segment's income margin
remained flat at 3.2% during the quarter.
At the end of the quarter, OfficeMax operated 921 retail
stores - 828 in the U.S. and 93 in Mexico. During the quarter,
the company opened 1 store in the U.S. and 3 stores in Mexico,
and closed 15 stores in the U.S.
OfficeMax and Office Depot recently announced the completion
of the merger, whereby both the companies will be combined under
the name Office Depot, Inc. and will trade at the New York Stock
Exchange under the symbol "ODP". For the time being, Neil
Austrian, Chairman and CEO of Office Depot and Ravi Saligram,
President and CEO of OfficeMax, will together spearhead the new
The all-stock merger agreement, which involves 2.69 Office
Depot shares for each share of OfficeMax, would result in cost
synergies in the upper half of $400 million to $600 million by
the end of the third year following the conclusion of the
Earlier, in February OfficeMax and Office Depot decided to
merge their businesses in order to better compete with the
) and online rivals such as
). The decision augurs well for both the companies, which have
been grappling with soft sales.
The new company with total revenue of about $17 billion for
the 12 months ended Sep 28, 2013 has a headcount of approximately
66,000 globally, and offers service in 59 countries and operates
over 2,200 retail outlets.
Other Financial Details
OfficeMax ended the quarter with cash and cash equivalents of
$504.2 million, long-term debt of $225.7 million, non-recourse
debt of $735 million and shareholders' equity of $966.7
During the first-nine month period of 2013, the company
generated cash flow of $85.2 million from operating activities
and incurred capital expenditures of $65.3 million.
AMAZON.COM INC (AMZN): Free Stock Analysis
OFFICE DEPOT (ODP): Free Stock Analysis
OFFICEMAX INC (OMX): Free Stock Analysis
STAPLES INC (SPLS): Free Stock Analysis
To read this article on Zacks.com click here.