OfficeMax shares tumble on 1Q profit shortfall, lower sales
CHICAGO—OfficeMax Inc. reported a substantial drop in sales and worse-than-expected first-quarter results that prompted a sell-off of its stock Wednesday.
The Naperville-based office supply retailer posted a 9 percent profit increase due to an investment gain but said both its retail and business-customer units suffered from lower sales that show no immediate sign of improving.
"The sales declines we experienced during the past two quarters have continued in April," Chief Executive Sam Duncan said.
The gloomy outlook and 6 percent decline in revenue sent OfficeMax shares down $1.93, or 9.6 percent, to close at $18.27.
The office product supplies sector, along with many others, has been pressured as consumers cut back on spending in a tight economy.
"Sales and profit declines are concerning," Goldman Sachs analyst Matthew Fassler said in a note to investors about OfficeMax earnings.
OfficeMax said net income after preferred dividends rose to $62.4 million, or 81 cents per share, compared with $57.5 million, or 76 cents per share, a year earlier. The increase resulted from its investment in Boise Cascade LLC.
Excluding one-time items, earnings per share were 68 cents -- a penny lower than the consensus estimate of analysts surveyed by Thomson Financial.
Revenue fell to $2.3 billion from $2.44 billion -- $1.2 billion from its contract segment, for business customers, and $1.11 billion from its retail segment.
Duncan said lower sales reflect the weaker economy. He said the company was successful in streamlining operations and pursuing cost controls.
Comparable sales from its retail stores fell 8.7 percent and across all major product categories, the company said. The profit margin dipped to 28.5 percent from 29.3 percent.
Sales from the contract segment decreased more than 12 percent in the United States, offsetting a 15 percent gain in its smaller international business. Gross margins climbed 0.6 percent to 22.7 percent, which the company attributed primarily to increased discipline in account acquisition and retention.
Duncan said the company has boosted its margins in sales to business customers by no longer chasing large but unprofitable accounts.
"We have not stopped going after the right sales," he told analysts on a conference call. "There are business gains we get every day as well as some businesses we do forgo because of the price we need to pay."
OfficeMax, which trails Staples Inc. and Office Depot Inc. among office suppliers, opened a dozen new retail stores in the quarter. As of the end of the quarter, it had 988 retail stores -- 914 in the United States and 74 in Mexico.
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