OfficeMax Initiated at Neutral - Analyst Blog
September 29 2011 - 1:08PM
Zacks
We have initiated our coverage on OfficeMax
Inc. (OMX) with a long-term Neutral recommendation and a
price target of $5.60. The company provides office supplies and
paper, print and document services, technology products and
solutions as well as office furniture to business firms, government
organizations and other retail consumers.
How the Company Balances
As the economy continues to be sluggish, consumers and small
businesses remain frugal about big-ticket spending like business
machines and other durables. Therefore, we believe that the demand
for office products is closely tied to the health of the
economy.
Consequently, OfficeMax is repositioning itself to keep afloat
in a difficult consumer environment. The company is containing
costs, closing underperforming stores and focusing on innovative
products and services, which should all contribute to margin
improvements. Further, the company also anticipates regaining
operating margins of more than 3.8% by 2015.
The company also focuses on optimal store sites in order to
boost store productivity. OfficeMax is also committed to improving
sales per square foot by increasing customer traffic and converting
them into potential buyers by targeted advertising, ongoing sales
training and customer-oriented initiatives. The company has
initiated control center technology services to assist customers
with PC maintenance or removal of viruses.
Past Quarter Better-than-Expected
OfficeMax posted better-than-expected second-quarter 2011
results. The quarterly earnings of 7 cents a share outpaced the
Zacks Consensus Estimate of break-even but dropped 41.7% from 12
cents earned in the year-ago quarter. Measures to check the
downfall are being taken via cost management.
Total sales fell marginally by 0.3% to $1,647.6 million from the
comparable-quarter last year, reflecting a tough macroeconomic
environment but came in ahead of the Zacks Consensus Estimate of
$1,642 million.
Challenging Economy Neutralizing
Efforts
Challenging macroeconomic conditions is making business tough
for retailers of office supplies such as OfficeMax, Office
Depot Inc. (ODP) and Staples Inc. (SPLS)
who are grappling with soft demand.
OfficeMax lowered its third-quarter 2011 sales outlook in the
backdrop of sluggish back-to-school sales and soft technology
demand. The company 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 remain
flat 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 than the year-ago period including
the positive impact of foreign currency translation and the gain
from extra week in the fourth quarter.
Let’s Conclude
No one can predict the future but efforts to combat the tough
economy are obvious. Business budget remains tight, consumers
remain more cautious than ever before and companies are trying hard
to navigate through the challenging environment.
Going by the pulse of the economy and given the pros and cons,
we prefer to have a long-term Neutral rating on the stock.
Moreover, OfficeMax holds a Zacks #3 Rank that translates into a
short-term Hold rating and correlates with our long-term view.
OFFICE DEPOT (ODP): Free Stock Analysis Report
OFFICEMAX INC (OMX): Free Stock Analysis Report
STAPLES INC (SPLS): Free Stock Analysis Report
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