OfficeMax Reports 2Q Results

2007-8-2 21:54 From: Recharger Magazine

OfficeMax (NYSE: OMX) reported net income of $27.4 million, or $.35 per diluted share, for the second quarter ended June 30, 2007 compared with net income of $27.4 million, or $.35 per diluted share, in the second quarter of 2006.
Net income and diluted earnings per share increased approximately 20% in the second quarter of 2007 from net income of $23.0 million, or $.29 per diluted share in the second quarter of 2006, excluding special items. A detailed description of prior quarter special items, and a reconciliation to the company's GAAP financial results, are included in this press release.
"Our results for the second quarter showed progress in many areas, but aspects of our businesses remain opportunities for improvement," said Sam Duncan, Chairman and CEO of OfficeMax. "In our Contract segment, operating margin contracted from lower-margin sales in spite of the benefit of some expense leverage. In our Retail segment, positive same store sales, expanded gross margins and cost containment delivered operating income margin improvement."
Contract Segment
OfficeMax Contract segment sales increased 4.4% to $1.2 billion in the second quarter of 2007 compared to the second quarter of 2006, reflecting U.S. Contract sales growth of 2.2% and international contract operations sales growth of 11.1% in U.S. dollars, or 2.9% in local currencies.
Contract segment operating income decreased to $41.0 million in the second quarter of 2007 from $44.4 million in the second quarter last year. Contract segment gross margin decreased to 21.4% in the second quarter of 2007 from 22.1% in the second quarter of 2006, primarily due to the continued impact of new and renewing accounts with lower gross margin rates, the impact of higher paper prices, partially offset by improved vendor funding. Contract segment operating income margin in the second quarter of 2007 benefited from expense leverage in International Contract operations and targeted cost controls.

Retail Segment
OfficeMax Retail segment sales increased 4.6% to $935.3 million in the second quarter of 2007 compared to the second quarter of 2006. Retail segment same-store sales increased 1.6% in the second quarter of 2007. Adjusted for the company's initiative to eliminate mail-in rebates and to provide instant rebates in lieu of national, vendor-sponsored mail-in rebates, same-store sales increased by 2.7% during the second quarter of 2007.
Retail segment operating income increased to $24.7 million in the second quarter of 2007 from $18.2 million, excluding special items, in the second quarter of 2006. Retail segment gross margin increased to 29.9% in the second quarter of 2007 from 29.7% in the second quarter of 2006, primarily due to improved vendor funding and more effective promotional strategies. Retail segment operating income margin in the second quarter of 2007 benefited from lower occupancy costs and reduced advertising expense, partially offset by increased allocated general and administrative expenses.
During the second quarter of 2007, OfficeMax opened 9 new retail stores and closed 1 store, ending the quarter with 923 retail stores in the U.S. and Mexico compared with 874 stores at the end of the second quarter of 2006.
Corporate and Other Segment
The OfficeMax Corporate and Other segment includes support staff services and certain other expenses that are not fully allocated to the Retail and Contract segments. Corporate and Other segment operating expense decreased to $9.8 million in the second quarter of 2007 from $14.1 million, excluding special items, in the second quarter of 2006, primarily due to reduced legacy-related costs.
OfficeMax generated $120.9 million of cash from operations in the second quarter of 2007, an increase of $41.9 million from the second quarter of 2006. OfficeMax invested $31.3 million for capital expenditures in the second quarter of 2007 compared to $23.7 million in the second quarter of 2006. As of June 30, 2007, OfficeMax reported total debt of $391.5 million excluding the timber securitization notes, and cash and cash equivalents of $220.6 million.