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OfficeMax reported results for the fourth quarter and fiscal year ended December 31, 2005. For the fourth quarter of 2005, the company reported a net loss of $43.1 million, or $.62 per diluted share, compared with net income of $.7 million, or a net loss of $.02 per diluted share, in the fourth quarter of 2004. For the full year 2005, the company reported a net loss of $73.8 million, or $.99 per diluted share, compared with net income of $173.1 million, or $1.77 per diluted share, for the same period in 2004. Financial results in 2004 include the results of the company's paper, forest products, and timberland assets, reported as the Boise Building Solutions and Boise Paper Solutions segments, which were sold in October 2004.
Results for 2004 and 2005 include various items, including a loss from discontinued operations, which are not expected to be ongoing. A full description of these special items and a reconciliation to the company's reported GAAP financial results are included in this press release. For the fourth quarter of 2005, excluding these special items, OfficeMax reported net income of $6.0 million, or $.07 per diluted share, compared with a net loss of $18.7 million, or $.24 per diluted share, in the fourth quarter of 2004. For the full year 2005, excluding special items, the company reported net income of $23.5 million, or $.24 per diluted share, compared with net income of $102.8 million, or $1.00 per diluted share, for the same period in 2004.
Contract Segment
OfficeMax Contract segment sales increased 9.4% in the fourth quarter of 2005 and 5.9% for the full year 2005 compared to the fourth quarter and full year 2004, respectively. Fourth quarter 2005 Contract sales increased due to sales growth of 9.8% in U.S. Contract operations and 8.2% in international Contract operations. U.S. Contract sales in the fourth quarter of 2005 were affected by a change in the fiscal quarter end to conform to our Retail segment fiscal reporting period. As a result, U.S. Contract sales benefited from five additional selling days in the fourth quarter of 2005 compared to the fourth quarter of 2004. Adjusting for the difference in selling days, and excluding the impact of acquisitions in the international Contract businesses, total Contract sales increased 1.1% in the fourth quarter of 2005 compared to the same period in 2004.
Contract results for the fourth quarter of 2005 included a charge of $5.4 million related to restructuring activities in the Canadian operations, including the closure of five Canadian retail stores. Excluding special items, Contract segment operating profit increased by $9.8 million to $29.6 million in the fourth quarter of 2005, and by $8.4 million to $115.4 million for the full year 2005 compared to the same periods in 2004. The improvement in Contract segment operating profit in the fourth quarter of 2005 compared to the prior year was due to improved sales and expense controls, which more than offset the declines in gross margin. Fourth quarter 2005 gross margin declined primarily due to a continuing competitive pricing environment in the U.S. large customer market and higher delivery costs from increased energy prices. Fourth quarter U.S. Contract gross margin declines were partially offset by improved gross margins in our Canadian operations and a higher level of margin contribution by our U.S. middle market operations.
Retail Segment
OfficeMax Retail segment sales increased 6.8% in the fourth quarter of 2005 and 1.1% for the full year 2005 compared to the fourth quarter and full year of 2004, respectively. Retail sales in 2005 included one additional selling week during the year compared to 2004, with sales for the extra week totaling approximately $75 million. Same-store sales decreased 1% for both the fourth quarter and full year 2005. Retail sales for the fourth quarter of 2005 were impacted by varying sales performance among geographic regions and flat same-store sales in most product categories, partially offset by strong sales in Print and Document Services. During the fourth quarter of 2005, sales increased in the West, Southeast and Mountain regions and declined in the Northeast and Midwest regions.
Retail results for the fourth quarter of 2005 included a charge of $17.9 million primarily related to the previously announced plan to close 110 domestic retail stores by the end of the first quarter of 2006. Excluding this item, OfficeMax Retail operating income increased by $39.3 million to $22.4 million in the fourth quarter of 2005 and by $23.2 million to $45.8 million for the full year 2005 compared to the same periods in 2004. The improvement in Retail segment operating profit in the fourth quarter of 2005 compared to the prior year was due to sales growth, improved gross margin and expense control. Retail segment gross margin increased significantly in the fourth quarter of 2005 compared to the same period in 2004, and contributed to higher gross margin for the full year 2005. Gross margin increased in the fourth quarter of 2005 in nearly all product categories due to the successful execution of a more effective promotional strategy, partially offset by significantly higher fuel and utility prices.
During the fourth quarter of 2005, OfficeMax opened 18 new retail stores and closed 3 stores, ending the year with 970 retail stores compared to 940 stores at year end 2004.
Corporate and Other Segment
The OfficeMax Corporate and Other segment includes support staff services and certain other expenses that are not fully allocated to the Retail and Contract segments. Corporate and Other segment results in the fourth quarter of 2005 included a charge of $23.6 million primarily related to the previously announced headquarters consolidation and the write-off of certain deferred software costs. Corporate and Other segment results in the fourth quarter of 2004 included a gain of $264.7 million primarily related to the sale of the paper, forest and timberland assets. Excluding these special items, Corporate and Other operating expense decreased by $3.4 million to $10.6 million in the fourth quarter of 2005 from $14.0 million in the fourth quarter of 2004.
"We are pleased with the improved performance in the fourth quarter of 2005, including strong expense control in Contract and substantial margin expansion in Retail," said Sam Duncan, Chairman and Chief Executive Officer of OfficeMax. "With the fourth quarter Contract and Retail results, we continue to believe that OfficeMax is positioned to achieve the 2006 and intermediate-term goals that we outlined in our turnaround plan last month."
2006 Outlook
On January 24, 2006, OfficeMax announced a turnaround plan for higher performance including details of the company's operating plan for 2006. As previously announced, the company anticipates full year 2006 Earnings Before Interest and Taxes (EBIT), excluding accounting charges, to be in the range of 2.0 percent to 2.25 percent of sales, based on the successful implementation of key operating initiatives that are expected to improve pre-tax results by approximately $100 million. The company expects 2006 total consolidated sales to be flat to slightly up compared to 2005, Retail segment same store sales growth to be in the low single digits and Contract segment sales growth to be in the mid-single digits.
