UPDATE 3-OfficeMax sees weaker sales ahead, shares fall

Tue Aug 3, 2010 11:11am EDT

* Q2 EPS ex-items 12 cents vs Street view of break-even

* Sales down 0.3 pct at $1.65 billion; miss expectations

* Sees lower Q3 sales vs year-ago

* Shares down 9 pct, weigh on Staples, Office Depot (Adds CFO, analyst comments, full-year outlook, shares)

By Dhanya Skariachan

NEW YORK, Aug 3 (Reuters) - OfficeMax Inc OMX.N missed quarterly sales expectations and forecast lower sales in the current back-to-school quarter, citing a weak U.S. economy, and its shares fell 9 percent.

The news came a week after larger rival Office Depot ODP.N missed quarterly sales estimates and forecast a flat operating profit in the current quarter. [ID:nN26197448] Shares of Office Depot fell 3.9 percent, while industry leader Staples (SPLS.O) slipped 2.7 percent.

Office supply sellers are viewed as a barometer of economic health since demand for their products is closely tied to white-collar employment rates. They have struggled in the weak economy as consumers and small businesses cut spending.

"The second half (of 2010) is not going to be the tailwind that we thought it would be earlier in the year," Chief Financial Officer Bruce Besanko told Reuters in an interview.

A fresh batch of data on Tuesday showed U.S. consumer spending and incomes unexpectedly flat in June while personal savings were the highest in a year, implying an anemic economic recovery for the remainder of 2010. [ID:nN03194366]

U.S. Commerce Department data released last Friday showed economic growth slowed in the second quarter as companies invested in equipment from abroad and consumers spent less. [ID:nN29111411]

SALES FALL SHORT

OfficeMax said second-quarter net income was $11.8 million, or 14 cents a share, compared with a net loss of $17.7 million, or 23 cents a share, a year ago.

Excluding one-time items, it earned 12 cents a share. Analysts on average were expecting the company to break even, according to Thomson Reuters I/B/E/S.

Sales slid 0.3 percent to $1.65 billion, while analysts on average expected $1.67 billion.

Contract segment sales, which include sales to business and government customers, slipped 0.1 percent, mainly on weakness in the United States. Retail same-store sales fell 0.3 percent.

Besanko said many of OfficeMax business customers have adopted a "substantially more disciplined" approach to restocking.

Credit Suisse's Gary Balter cut his 2010 earnings estimate on OfficeMax to 65 cents a share from 83 cents a share to reflect the lack of sales growth. He kept next year's estimate intact on expectations a recovery will come at some point.

Besanko also said he expected a "very, very tough" back-to-school season in the coming weeks, with shoppers being even more selective and retailers looking more to promotions.

For the third quarter, OfficeMax said it expects sales to be slightly lower than a year earlier, including a gain from foreign currency translation. It also expects lower adjusted operating income margin.

For the full year, OfficeMax expects sales to be flat to slightly lower than 2009, including foreign currency benefits. It sees a higher adjusted operating income margin rate than 2009, but significantly less than the 140 basis point year-over-year margin improvement in the first half of 2010. (Reporting by Dhanya Skariachan, editing by Maureen Bavdek, John Wallace, Dave Zimmerman)

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