UPDATE: OfficeMax Posts Strong 1Q Results On Growth Efforts

OfficeMax Inc. (OMX) reported first-quarter earnings nearly doubled from a year earlier as the office supplies retailer benefited from growth initiatives and favorable foreign exchange rates.

The No. 3 office products retailer by sales reported earnings of $24.8 million, or 29 cents a share, higher than the 21 cents per share projected by analysts polled by Thomson Reuters. Sales edged up by 0.3% to $1.92 billion, with favorable overseas currency rates offsetting continued sales softness in the U.S.

The company said second-quarter and full-year sales would be slightly higher than the year-ago periods.

"This is a transitions year for us as we move more from a turnaround story to a growth story," said Chief Financial Officer Bruce Besanko in an interview with Dow Jones Newswires.

But while the results show improvement, OfficeMax "is still suffering from economic pressure because most of our business is to businesses" severely hurt by the economic downturn, Besanko said.

OfficeMax's contract sales to businesses rose 3.8% to $963 million in the first quarter, but were down 3.5% on a U.S. currency basis. Sales through OfficeMax retail stores fell 3% to $954.3 million, reflecting a same-store sales decrease of 2.5% and fewer stores.

OfficeMax gross margin rose to 26.4%, up 200 basis points and ahead of most analysts' expectations, as the small sales lift combined with efforts to improve profitability.

The efforts include expanding offerings and services though retail stores and to businesses, improving operations like call centers, and selling more through outside locations, like thousands of Safeway Inc. (SWI) and Food Lion supermarkets.

OfficeMax may be the stock to bet on as the economic recovery unfolds, an analyst said. "If one believes that we are at the beginning of a U.S. economic recovery and employment and spending will improve, this stock remains our best leveragable play, and today's components point to more upside if and when that recovery happens than we had projected," said Gary Balter of Credit Suisse.

OfficeMax shares are up $1.27, or 7.8%, to $17.47, a contrast with the trouncing taken earlier this week by rival Office Depot Inc. (ODP) after posting softer-than-expected results.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com

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