OMX Officemax Incorporated

Challenging macroeconomic conditions are making life tough for office supplies retailers such as OfficeMax Inc. (OMX), Office Depot Inc. (ODP) and Staples Inc. (SPLS) who are grappling with soft demand for big-ticket items such as business machines and other durable products.

Recently, OfficeMax lowered its third-quarter 2011 sales outlook in the backdrop of sluggish back-to-school sales and soft technology demand. Consequently, the company is repositioning itself to keep afloat in a difficult consumer environment. Management remains focused on containing costs and providing innovative products and services, which should all contribute to margin improvements.

OfficeMax now expects third-quarter 2011 sales to be marginally lower than the comparable period, including the positive impact of foreign currency translation. Earlier, management had guided third quarter sales to be flat compared with the prior-year quarter. The company had posted revenue of $1,813.4 million in third-quarter 2010.

However, OfficeMax reiterated that sales for the second half of 2011 will be marginally higher compared with the year-ago period including the positive impact of foreign currency translation and the gain from the extra week in the fourth quarter.

Management also continues to expect adjusted operating margin for the third quarter and fiscal 2011 to be in line or marginally higher compared with the respective year-ago periods.

The recovery in the economy still lacks luster. As a result, consumers and small businesses still remain wary about their spending. The demand for office products is closely tied to the health of the economy.

OfficeMax had earlier delivered better-than-expected second-quarter 2011 results. The quarterly earnings of 7 cents a share outpaced the break-even estimate according to the Zacks Consensus, but dropped 41.7% from 12 cents earned in the year-ago quarter. The company in order to check the fall in its bottom line has been managing its costs effectively.

Total sales fell marginally by 0.3% to $1,647.6 million from the same-quarter last year, reflecting a tough macro-economic environment, but were ahead of the Zacks Consensus Estimate of $1,642 million.

Currently, OfficeMax holds a Zacks #3 Rank, which translates into a short-term Hold rating.

 
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