OfficeMax Beats, Remains Cautious - Analyst Blog
October 28 2011 - 7:59AM
Zacks
In a tough
economic environment, OfficeMax
Inc. (OMX) posted
better-than-expected third-quarter 2011 results. The quarterly
earnings of 25 cents a share beat the Zacks Consensus Estimate by a
penny, and rose 8.7% from 23 cents earned in the year-ago quarter
despite witnessing a low-single digit fall in the top-line. The
company has been actively managing its costs to cushion its
bottom-line.
Cost of
goods sold and occupancy costs dropped 2.1%, whereas operating,
selling and general administrative expenses fell 2.6%.
Behind the
Headline
Total sales
tumbled 2.1% to $1,774.8 million from the same-quarter last year,
and also fell short of the Zacks Consensus Estimate of $1,808
million reflecting a challenging economy.
The office
supplies retailer now expects fourth-quarter 2011 sales to be
marginally higher versus the comparable period, and forecasted that
sales for fiscal 2011 will be marginally lower compared with the
prior-year. Both include the positive impact of foreign currency
translation.
The recovery
in the economy is still lackluster. As a result, consumers and
small businesses still remain wary on their spending. OfficeMax is
repositioning itself to keep afloat in a difficult consumer
environment. The company is containing costs, closing
underperforming stores and focusing on providing innovative
products and services.
OfficeMax
notified that gross profit dipped 2.3% to $459.7 million, whereas
gross profit margin remained flat at 25.9% but expanded 10 basis
points sequentially. Operating income for the quarter inched up
0.9% to $41.3 million, whereas operating margin remained flat at
2.3% but increased 120 basis points sequentially.
Management
now expects adjusted operating margin for the fourth quarter and
fiscal 2011 to be in line with 1.7% attained in the first-nine
months of 2011.
Segment
Discussion
OfficeMax
Contract segment sales grew marginally by 0.7% to $883.3 million in
the quarter. The segment witnessed a decline of 2.4% in Contract
operations sales in the U.S. but an increase of 7.7% in Contract
operations sales in international markets. Segment sales tumbled
2.6% in constant currency. Segment gross profit margin contracted
10 basis points to 22.7%.
OfficeMax
Retail segment sales dropped 4.3% to $891.5 million, reflecting a
4.3% decline in comparable-store sales. The fall in the U.S. comps
was partially offset by healthy sales in Mexico. Segment gross
profit margin expanded 10 basis points to 29%.
At the end
of the quarter, OfficeMax operated 983 retail stores, comprising
900 retail stores in the U.S. and 83 retail stores in Mexico.
During the quarter under review, the company opened 4 retail
stores in Mexico and closed 4 retail stores in the U.S. For fiscal
2011, OfficeMax now plans – to open 7 and close 2 stores in Mexico,
and shutter 20 locations in the U.S.
Other Financial
Details
OfficeMax
ended the quarter with cash and cash equivalents of $485.4 million,
total long-term debt of $270 million, non-recourse debt of $1,470
million and shareholders’ equity of $657.6 million. Capital
expenditures for the quarter were $13.4 million.
Management
now expects capital expenditures of approximately $75 million in
fiscal 2011. During the nine months of fiscal 2011, the company
generated cash flows of $78.7 million from operating activities.
Management expects cash flow from operations to exceed capital
expenditures for fiscal 2011.
Let’s
Conclude
Although the
future is unpredictable, but efforts to combat the tough economy
are obvious. Business budgets remain tight, consumers remain more
cautious than ever before and companies are trying hard to navigate
through the challenging environment. Consumers and small businesses
remain frugal about big-ticket spending on items such as business
machines and other durable products.
We believe
that the demand for office products is closely tied to the health
of the economy. Currently, we maintain our long-term Neutral rating
on the stock. However, OfficeMax, which competes with
Office
Depot Inc. (ODP) and
Staples
Inc. (SPLS), holds a Zacks #4 Rank,
which translates into a short-term Sell rating.
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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