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UPDATE 2-OfficeMax trumps estimates; sees economy improving
April 29, 2010 / 11:32 AM / 8 years ago

UPDATE 2-OfficeMax trumps estimates; sees economy improving

* Q1 EPS ex-items 39 cents vs Street’s 21 cents

* Sees 2010 sales above last-year’s levels

* Sees U.S. economy recovering more in the back half

* Says April sales weakness not a “hiccup” to growth

* Shares up 11 percent; lifts peers Staples, Office Depot

(Adds outlook, exec, analyst comments, background)

By Dhanya Skariachan

NEW YORK, April 29 (Reuters) - OfficeMax Inc OMX.N beat quarterly profit estimates and forecast higher 2010 sales as it kept a tight lid on costs and saw its customers warm up to spending on office supplies in an improving U.S. economy.

The results, which sent its shares up to their highest level since June 2008, came just two days after larger rival Office Depot Inc ODP.N reported weaker-than-expected quarterly results and forecast a second-quarter operating loss. [ID:nN27228444]

The third-largest U.S. office supplies seller has been gaining new customers and managing its costs tightly. Last month, it shed light on a plan to boost sales in coming years by offering more in-store services and taking its goods to grocers, drugstores and mass merchants. [ID:nN04241641]

“OfficeMax has de facto become the No. 2 player in office supply retailing behind Staples SPLS.O. Office Depot’s first-quarter issues were due more to company-specific issues than the underlying macroeconomic environment, which clearly is improving,” BB&T Capital Markets’s Anthony Chukumba said.

The OfficeMax results bode well for industry leader Staples, he said.

Shares of Office Depot and Staples stock were up about 2 percent on Thursday afternoon.

OfficeMax Chief Financial Officer Bruce Besanko said in an interview that the company was seeing the U.S. economy recovering more toward the back half of 2010.

It is seeing a gradual pick-up in sales of big-ticket items like furniture and its customers warming up to the idea of buying off-contract items after a long hiatus, Chief Operating Officer Sam Martin told Reuters.

Its net profit rose to $24.8 million, or 29 cents a share in the first quarter that ended on March 27, from $13.1 million, or 17 cents a share, a year earlier.

Excluding items, the profit was 39 cents a share, well ahead of analysts’ average estimate of 21 cents, according to Thomson Reuters I/B/E/S.

Sales edged up 0.3 percent to $1.92 billion, beating expectations by a small margin.

Contract segment sales, which includes sales to its business and government customers, rose 3.8 percent mainly on strength in its international business.

Retail same-store sales fell 2.5 percent. But that was an improvement over a 6.7 percent decline in the fourth quarter of 2009 and reflected favorable sales trends in the United States and Mexico.

Like its larger rival Office Depot, the company talked about weakness in markets like California. CFO Besanko pointed out Arizona and Nevada as other markets that were suffering. On a regional basis, the U.S. Midwest performed better than others.

The company said it expects total sales in the second quarter to be “slightly higher” than the prior-year period mainly due to a foreign-exchange benefit, but warned that quarter-to-date domestic sales were sequentially down from first-quarter levels.

COO Martin expects domestic sales trends to perk up in May and June and said the weakness in April would not be a “hiccup to any of our growth-driving initiatives.”

Reporting by Dhanya Skariachan; Editing by Derek Caney, Phil Berlowitz

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