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OfficeMax Retail Sales Dip 1%

7/27/2005 08:42:00 AM Eastern

Itasca, Ill. — OfficeMax reported “some weakness” in its retail segment in the second quarter, due, in part, to the retailer’s re-merchandising initiative that focused on the small business customer.

Retail segment sales came in at $953.6 million, off 1 percent for the three months, ended June 25, from $966.7 million in the year-ago second quarter. Same-location sales in the second quarter decreased 2 percent from the same period in 2004.

Second-quarter retail segment sales declined, compared with the year-earlier second three months, due primarily to soft sales in the company’s technology and furniture categories, offset by strong sales growth in print and document services. The sales drop was also attributed to lower advertising spending in the second quarter, a strategy OfficeMax intended to reduce costs and to shift retail promotional activity toward the small business customer.

A larger-than-expected operating loss in the retail segment came in at $15.5 million in the second quarter, compared with a loss of $4.2 million in the same three months the prior year. Gross margin in the retail segment declined to 25.6 percent in the second quarter, down from a year-on-year 26.9 percent. This decrease was due to lower sales; higher freight costs; and the company’s re-merchandising initiative, which accelerated the clearance of inventory that was discontinued during the three months.

Strong second-quarter sales in the retailer’s contract segment, its largest, grew 10 percent to $1.1 billion from a year-earlier $1 billion. Same-location sales increased 9 percent. Operating income rose to $23.7 million in the quarter, up from $21.4 million in the same period in 2004, while gross margin dropped to 21.9 percent, from 24 percent, due to a more competitive pricing environment for large U.S. contract customers, said the company.

In the first half, retail segment sales were flat at $2.15 billion, down from $2.19 billion in the first six months of 2004. Operating income for retail in the period was reduced to $7.4 million from a year-earlier $12.7 million.

Consolidated OfficeMax sales in the second quarter dropped to $2.1 billion from a year-ago $3.4 billion, due primarily to the inclusion of sales from the company’s Boise Building Solutions and Boise Paper Solutions segments in the 2004 period. As previously reported, OfficeMax completed the sale of the assets of these segments in October of 2004.

The retailer reported a consolidated net loss of $21.5 million in the second quarter, compared with net income of $51.1 million year-over-year. Excluding special items, the retailer reported a second-quarter net loss of $12.7 million, compared with year-on-year net income, before special items, of $27.1 million.

For the six months, consolidated sales slid to $4.4 billion, from $6.9 billion, while the retailer reported a net loss of $26.8 million, compared with net income of $110.2 million in the first half of last year.