OfficeMax Q1 Retail Sales Flat

By Jeff Malester -- TWICE, 4/27/2006

Itasca, Ill. — The closing of 109 underperforming stores in the first quarter negatively impacted overall sales at office products retailer OfficeMax, with retail segment revenue declining 0.5 percent year-on-year, down to $1.19 billion from $1.20 billion.

Same-store sales rose 1.2 percent. Excluding the closed stores, same-store sales increased 2.2 percent, with the retailer’s comp rise benefiting from positive sales in nearly every product category, with continued strength in print and document services.

Retail operating profit for the first quarter, ended April 1, and included a charge of $98.6 million related to the 109 store closings. Excluding this item, operating income increased by $37.7 million, to $60.6 million. Including the charge, retail recorded a loss of $38 million, compared with a profit of $22.9 million in the first quarter of 2005. Retail operating profit in the opening quarter benefited from targeted cost reductions, including reduced store labor costs and advertising and marketing expenses.

Retail segment gross margin moved up to 28.6 percent in the first three months of the year, compared with 26.4 percent in the same three months in 2005.

During the first quarter, OfficeMax opened six new stores, ending the three months with 867 locations, compared with 940 at the end of the first three months of the prior year.

“Our first-quarter 2006 operating results were quite strong, including substantial gross margin expansion and strong expense control in both our contract and retail segments,” said Sam Duncan, chairman/CEO.

“In our retail segment, we saw significant improvement through a more productive promotional strategy and effective cost control.”

Consolidated sales at OfficeMax moved up to $2.4 billion in the first quarter, compared with $2.3 billion in the year-ago period.

Net loss at the retailer widened to $25.1 million in the first quarter, up from a loss of $5.3 million year-over-year.

In the first quarter, net income before special items was $55.7 million, compared with net income before special items of $17.7 million in the same three months in 2005.

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