Soft economic conditions coupled with a sluggish demand for
technology products resulted in lower-than-anticipated
first-quarter 2013 results at
). The quarterly earnings came in at 11 cents a share that missed
the Zacks Consensus Estimate of 23 cents, and dropped 50% from 22
cents earned in the prior-year quarter.
Including one-time items, the company reported earnings of 64
cents a share compared with 6 cents in the year-ago quarter.
Alongside, this Zacks Rank #4 (Sell) company declared a special
dividend of $1.50 per share, which will be paid on Jul 2, 2013 to
shareholders of record as of Jun 12.
Total sales dropped 5.7% year over year to $1,766.7 million, and
also fell short of the Zacks Consensus Estimate of $1,842
million. However, excluding the impact related to foreign
currency translation, store plans and difference in days of
business operations, sales declined 4.3%.
Management hinted that sales trend in April remained soft, but
portrayed a marginal improvement from the first quarter. The
company now forecasts sales for the second quarter of 2013 to be
lower than sales of the comparable prior-year quarter, including
the favorable impact of foreign currency translation.
Sales for 2013 are also projected to be lower than the prior
year, including the positive impact of foreign currency
translation. Management further stated that sales will continue
to decline in the coming quarters but at a rate lower than the
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OfficeMax's gross profit declined 5% year over year to $458.9
million during the quarter, while gross profit margin expanded 20
basis points to 26%. Adjusted operating income plummeted 45.4% to
$22.4 million, whereas adjusted operating margin shriveled 90
basis points to 1.3%.
Management expects adjusted operating margin for second-quarter
2013 to be positive but considerably lower than the prior-year
quarter, whereas for 2013 it is expected to remain lower than the
prior year but up from adjusted operating margin for the first
OfficeMax Contract sales dipped 4.1% year over year to $921.3
million in the quarter, reflecting a 3.5% decline in U.S.
Contract operations sales and a 5.4% fall in Contract operations
sales in international markets (down 5.2% in constant currency
basis). On account of increased customer margins, Contract
segment's gross profit margin strengthened 30 basis points to
22.7%. However, segment income margin contracted 110 basis points
OfficeMax Retail sales fell 7.3% year over year to $845.4
million, reflecting a decline of 5.4% (in constant currency) in
comparable-store sales due to lower traffic and soft sales of
technology products. U.S. comparable-store sales fell 5.7%,
whereas comparable-store sales in Mexico declined 2.1% in
constant currency. Retail segment's gross profit margin expanded
30 basis points to 29.6%, reflecting favorable sales mix.
Segment's income margin decreased 60 basis points to 1.9% during
At the end of the quarter, OfficeMax operated 936 retail stores:
846 in the U.S. and 90 in Mexico. During the quarter, the company
opened 1 store in Mexico and closed 5 stores in the U.S. and 1 in
During 2013, the company expects to downsize and relocate stores
as well as open smaller format stores in the U.S. The company
also plans to close 15 to 20 outlets. Moreover, the company plans
to open 4 stores and shutter 1 in Mexico.
Office Depot, Inc.
) decided to merge their businesses in order to better compete
with the industry bellwether,
) and online rivals such as
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
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.
Other Financial Details
OfficeMax ended the quarter with cash and cash equivalents of
$579.2 million, long-term debt of $226.6 million, non-recourse
debt of $735 million and shareholders' equity of $1,093.4
During the quarter, the company generated cash flow of $32.9
million from operating activities and incurred capital
expenditures of $28.4 million. Management expects cash flow from
operations to exceed capital expenditures in 2013. The company
projects capital expenditures in the range of $80-$90 million in