OfficeMax Reports 1Q Results
May 4, 2007
OfficeMax Incorporated (NYSE: OMX) reported results for the first quarter ended March 31, 2007, including net income of $58.6 million, or $.76 per diluted share, compared with a net loss of $25.1 million, or $.37 per diluted share, in the first quarter of 2006.
The first quarter of 2007 included a $1.1 million loss on the sale of our OfficeMax Contract operations in Mexico to our 51% owned Mexico joint venture. A detailed description of special items for this quarter and the same quarter last year and a reconciliation to the company's GAAP financial results are included in this press release. Excluding special items, net income for the first quarter of 2007 increased 7.2% to $59.7 million from $55.7 million in the first quarter of 2006. Excluding special items, diluted earnings per share were $.77 in both of the first quarters of 2007 and 2006.
"Our results for the first quarter showed moderate improvement," said Sam Duncan, Chairman and CEO of OfficeMax. "In our Contract segment, we are addressing lower-margin sales which contributed to operating income margin contraction. In our Retail segment, we are pleased with continued gross margin expansion which delivered operating income margin improvement. Overall, we believe that our strategic initiatives support our turnaround plans and our pursuit of generating long-term shareholder value."
Contract SegmentOfficeMax Contract segment sales increased 2.7% to $1.3 billion in the first quarter of 2007 compared to the first quarter of 2006, reflecting sales growth in both our U.S. and international contract operations.
Contract segment operating income decreased to $59.9 million in the first quarter of 2007 from $67.0 million in the first quarter last year. Contract segment gross margin decreased to 22.1% in the first quarter of 2007 from 23.2% in the first quarter of 2006, primarily due to the impact of new and renewing accounts with lower gross margin rates. Contract segment operating income in the first quarter of 2007 benefited from targeted expense controls partially offset by increased sales compensation.
Retail SegmentOfficeMax Retail segment sales decreased 1.8% to $1.2 billion in the first quarter of 2007 compared to the first quarter of 2006, primarily due to the impact of 109 strategic store closings completed during the first quarter of 2006. Retail segment same-store sales increased 0.5% in the first quarter of 2007. Adjusted for the company's initiative to eliminate mail-in rebates and to provide instant rebates in lieu of national, vendor-sponsored mail-in rebates, same-store sales improved by approximately 2% during the first quarter of 2007.
Retail segment operating income increased to $64.6 million in the first quarter of 2007 from $60.6 million, excluding special items, in the first quarter of 2006. Retail segment gross margin increased to 29.3% in the first quarter of 2007 from 28.6% in the first quarter of 2006, primarily due to more effective promotional and marketing strategies and improved vendor funding. Retail segment operating income in the first quarter of 2007 benefited from reduced payroll-related and occupancy costs, offset by increased advertising expense and allocated general and administrative expenses.
During the first quarter of 2007, OfficeMax opened 9 new retail stores, ending the quarter with 915 retail stores compared with 867 stores at the end of the first quarter of 2006.
Corporate and Other SegmentThe OfficeMax Corporate and Other segment includes support staff services and certain other expenses that are not fully allocated to the Retail and Contract segments. Excluding special items, Corporate and Other segment operating expense decreased by $7.3 million to $14.4 million in the first quarter of 2007 from the first quarter of 2006, primarily due to reduced legacy company costs.
OfficeMax used $80.4 million of cash for operations in the first quarter of 2007, a decrease of $152.3 million from the first quarter of 2006, reflecting changes in working capital and the impact of new stores and prior year strategic store closures. OfficeMax invested $28.1 million for capital expenditures in the first quarter of 2007 compared to $23.3 million in the first quarter of 2006. At March 31, 2007, OfficeMax reported total debt of $384.5 million excluding the timber securitization notes, and cash and cash equivalents of $139.6 million.
