OfficeMax Beats on EPS - Analyst Blog
November 07 2012 - 5:10AM
Zacks
On Tuesday, OfficeMax
Inc. (OMX) posted third-quarter 2012 adjusted earnings of
27 cents a share, surpassing the Zacks Consensus Estimate by a
penny and rising 8% from 25 cents earned in the prior-year quarter,
on the back of improved profitability.
However, total sales dropped 1.7% to $1,744.6 million year over
year, and also fell short of the Zacks Consensus Estimate of $1,781
million.
The office supplies retailer now expects fourth quarter sales to
remain even with or marginally down compared with the prior-year
period, including the favorable impact of foreign currency
translation. Sales for fiscal 2012 are projected to be lower than
the prior year, including the negative impact of foreign currency
translation and excluding the extra week in 2011, which resulted in
incremental sales of about $86 million.
OfficeMax’s gross profit inched up marginally to $460.4 million
during the quarter, whereas gross profit margin expanded 50 basis
points to 26.4%. Adjusted operating income for the quarter
increased 8.7% to $44.9 million, and operating margin expanded 30
basis points to 2.6%.
Management expects adjusted operating margin for the fourth quarter
to be a tad bit lower than the prior-year quarter’s 1.7% and for
fiscal 2012 it is expected to be marginally higher than 1.7%
reported in the prior year.
Segment Discussion
OfficeMax Contract segment sales dipped 0.3% to
$880.9 million in the quarter. The segment witnessed an elevation
of 3.9% in Contract operations sales in the U.S. and a decrease of
8.9% in Contract operations sales in international markets (down
7.2% in constant currency). Contract segment’s gross profit margin
strengthened 10 basis points to 22.8%, whereas segment income
margin increased 40 basis points to 3%.
OfficeMax Retail segment sales fell 3.1% to $863.7
million, reflecting a decline of 2.1% in comparable-store sales due
to sluggish sales witnessed in technology product category,
primarily in PC category. U.S. comparable-store sales fell
2.6%, whereas, comparable-store sales in Mexico rose 2.2% in
constant currency. Retail segment’s gross profit margin expanded
100 basis points to 30%, reflecting favorable sales mix and decline
in occupancy and delivery costs. Segment’s income margin remained
flat at 3.2% during the quarter.
At the end of the quarter, OfficeMax operated 960 retail stores––
872 in the U.S. and 88 in Mexico. During the quarter, the
company opened 3 stores in Mexico. For fiscal 2012, the company
plans to open 8 to 10 stores and close 1 to 2 stores in Mexico,
while in the U.S, it plans to open 1 store and close 45
outlets.
Other Financial Details
OfficeMax ended the quarter with cash and cash equivalents of $506
million, long-term debt of $226.5 million, non-recourse debt of
$735 million and shareholders’ equity of $1,044.4 million. Capital
expenditures for the first nine months of 2012 were $48.2
million.
Management now expects capital expenditures in the range of $70
million to $80 million in fiscal 2012. During the first nine months
of 2012, the company generated a cash flow of $157.8 million from
operating activities. Management expects cash flow from operations
to exceed capital expenditures in fiscal 2012.
The recovery in the economy, however, continues to remain
lackluster. As a result, consumers and small businesses still
remain cautious regarding 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 innovative products and
services.
Currently, we maintain our long-term ‘Outperform’ recommendation on
the stock. Moreover, OfficeMax, which competes with Office
Depot Inc. (ODP) and Staples Inc. (SPLS),
holds a Zacks #2 Rank that translates into a short-term ‘Buy’
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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