Business News

OfficeMax Reports First Quarter 2009 Financial Results

Monday 04. May 2009 - - First Quarter Net Income of $13.1 Million, or $0.17 Per Diluted Share - Adjusted Net Income of $17.4 Million, or $0.23 Per Diluted Share - Total Sales Decreased 17% to $1,911.7 Million

OfficeMax Incorporated (NYSE:OMX) today announced the results for its first quarter ended March 28, 2009. Total sales decreased 17.0% in the first quarter of 2009 to $1,911.7 million compared to the first quarter of 2008. Net income (available to OfficeMax common shareholders) decreased in the first quarter of 2009 to $13.1 million, or $0.17 per diluted share, from $62.4 million, or $0.81 per diluted share in the first quarter of 2008.

Sam Duncan, Chairman and CEO of OfficeMax, said, “Although our financial results declined in the first quarter versus the prior year period, we continued to make improvements to our business and to contain costs. We believe the actions we have been taking significantly benefited our company’s performance this quarter. We improved Retail segment operating expense as a percentage of sales compared to the first quarter of 2008 as a result of reorganizing our management, more efficient execution, and tighter cost controls. Our efforts to streamline our business are enabling us to operate profitably and preserve cash and liquidity to carry us through this very challenging economic environment.”

Results for the first quarter of 2009 and 2008 included certain charges and income that are not considered indicative of core operating activities. First quarter 2009 results included a $9.9 million pre-tax charge related to Retail store closures in the U.S. and Mexico, and a pre-tax benefit of $2.5 million recorded as other income related to tax distributions from the company’s investment in Boise Cascade, L.L.C. First quarter 2008 results included a pre-tax $20.5 million benefit recorded as other income related to tax distributions from the company’s investment in Boise Cascade, L.L.C., which was partly offset by a $4.2 million pre-tax charge related to the consolidation of manufacturing facilities in New Zealand and employee severance for restructuring the Retail field and ImPress print and document services management organization.

Excluding the items described above, adjusted net income in the first quarter of 2009 was $17.4 million, or $0.23 per diluted share, compared to adjusted net income of $52.6 million, or $0.68 per diluted share in the first quarter of 2008.

The company has calculated adjusted income and earnings per share which are non-GAAP financial measures that exclude the effect of certain charges and income described in footnotes to the accompanying financial statements. A reconciliation to the company’s GAAP financial results is included in this press release.

Contract Segment Results

OfficeMax Contract segment sales decreased 22.4% (15.4% after adjusting for the foreign currency exchange impact) to $927.6 million in the first quarter of 2009 compared to the first quarter of 2008, reflecting a U.S. Contract operations sales decline of 18.9%, and an International Contract operations sales decline of 30.1% in U.S. dollars (a sales decrease of 7.6% in local currencies). U.S. Contract sales in the first quarter reflect weaker sales from existing corporate accounts and our continued discipline in account acquisition.

Contract segment gross margin decreased to 21.0% in the first quarter of 2009 from 22.7% in the first quarter of 2008, primarily due to softer market conditions and a sales mix shift to a higher percentage of lower-margin consumable items. Contract segment operating expense as a percentage of sales increased to 18.7% in the first quarter of 2009 from 17.5% in the first quarter of 2008, primarily due to deleveraging of fixed operating expenses from lower sales. Contract segment adjusted operating income decreased to $21.5 million, or 2.3% of sales, in the first quarter of 2009 compared to adjusted operating income of $62.0 million, or 5.2% of sales, in the first quarter of 2008.

Retail Segment Results

OfficeMax Retail segment sales decreased 11.2% to $984.1 million in the first quarter of 2009 compared to the first quarter of 2008, reflecting a same-store sales decrease of 12.7%, partially offset by sales from new stores. Retail same-store sales for the first quarter of 2009 declined across all major product categories primarily due to weaker small business and consumer spending.

Retail segment gross margin decreased to 27.5% in the first quarter of 2009 from 28.5% in the first quarter of 2008, primarily due to deleveraging of fixed occupancy costs from the same-store sales decrease and new stores, and a sales mix shift to a higher percentage of lower-margin technology category sales, partially offset by improved margins on certain products. Retail segment operating expense as a percentage of sales was 24.9% in the first quarter of 2009 compared to 25.7% in the first quarter of 2008, and reflects reduced payroll, targeted cost controls, and reduced depreciation expense as a result of store impairment charges incurred in 2008; partially offset by deleveraging of fixed operating expenses from lower sales. Retail segment adjusted operating income decreased to $25.3 million, or 2.6% of sales, in the first quarter of 2009 from adjusted operating income of $31.2 million, or 2.8% of sales, in the first quarter of 2008.

OfficeMax ended the first quarter of 2009 with a total of 1,020 retail stores, consisting of 939 retail stores in the U.S. and 81 retail stores in Mexico. During the first quarter of 2009, OfficeMax opened 6 retail stores in the U.S., and closed 6 stores in the U.S. and 2 in Mexico. For the full year 2009, OfficeMax expects to open up to 12 retail stores, and to close between 15 and 25 retail stores.

Corporate and Other Segment Results

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 was $9.4 million in the first quarter of 2009.

Balance Sheet and Cash Flow

As of March 28, 2009, OfficeMax had total debt of $342.2 million, excluding $1,470.0 million of timber securitization notes, which have recourse limited to the timber installment notes receivable and related guarantees. As of March 28, 2009, OfficeMax had $149.3 million in cash and cash equivalents, and $486 million in available (unused) borrowing capacity under its $700 million revolving credit facility. The company’s unused borrowing capacity as of March 28, 2009 reflects an available borrowing base of $551 million, no outstanding borrowings, and $65 million of letters of credit issued under the revolving credit facility.

During the first quarter of 2009, OfficeMax generated $3.1 million of cash from operations, a decrease from the first quarter of 2008 primarily due to lower net earnings and the timing and associated decrease of payables and accruals, mitigated by reduced inventory levels. OfficeMax invested $10.9 million for capital expenditures in the first quarter of 2009 compared to $33.3 million in the first quarter of 2008. OfficeMax expects capital expenditures for full year 2009 to be in the range of $50 million to $70 million.

Outlook

In the near-term, April sales trends, including the negative impact of the timing of the Easter holiday, are more unfavorable compared to the first quarter trends. With respect to the full year, given the projected weak economic outlook, OfficeMax remains cautious in its expectations for 2009. The company expects sales to decline in 2009 on a year-over-year basis as a result of the difficult economic environment. In addition, the company is cycling significant expense reductions completed in 2008. As a result of these factors, and based on the current outlook, OfficeMax expects continued deleveraging of costs and expenses for the remainder of 2009.

Mr. Duncan concluded, “We are committed to placing OfficeMax in a stronger position for when the macro economy and industry trends improve. To do this, we are executing important initiatives that are centered on three key areas: growth, differentiation, and productivity. Further, we are strictly managing capital and we remain confident in our ability to generate positive cash flow for the year. We believe that all of our efforts will help us navigate the current environment and strengthen our business for the long-term.”