Business News

OfficeMax Reports Second Quarter 2013 Financial Results

Thursday 08. August 2013 - - Maintains High Quarterly Customer Retention Rate in U.S. Contract - Continues Double-Digit Sales Growth for OfficeMax.com - Continues to Optimize the Retail Store Base

OfficeMax Incorporated (NYSE:OMX), a leading provider of office and facility supplies, technology and services, today announced the results for its fiscal second quarter ended June 29, 2013.
Consolidated Results
Reported Results
Total sales were $1,533.0 million in the second quarter of 2013, as compared to $1,602.4 in the second quarter of 2012. For the second quarter of 2013, OfficeMax reported an operating loss of $0.9 million compared to operating income of $23.1 million in the second quarter of 2012, and a net loss available to OfficeMax common shareholders of $10.0 million, or $0.12 per diluted share, compared to net income of $10.7 million, or $0.12 per diluted share in the second quarter of 2012.
Adjusted Results
“Sales declined in the second quarter, which impacted profitability compared to the prior year period. We continue to implement cost reduction measures to align our expenses with our revenue base and expect second-half profit performance to improve versus the first half. Further, we’re pleased to have received additional cash proceeds from our Boise investment in July, bolstering our strong balance sheet,” said Ravi Saligram, President and CEO of OfficeMax. “In spite of secular challenges and an uneven economic recovery, we remain committed to restoring sales growth by evolving our business model to focus more on services, innovating new products and categories, growing our adjacencies, and building our omnichannel capabilities.”
Excluding the impact of changes in foreign exchange rates, the impact of stores closed and opened, and the difference in the number of business days in the quarter compared to the same quarter last year, adjusted sales for the second quarter of 2013 decreased 4.1% from the second quarter of 2012.
For the second quarter of 2013, adjusted operating income was $10.8 million, or 0.7% of sales, compared to $21.0 million, or 1.3% of sales, in the second quarter of 2012; and adjusted net income available to OfficeMax common shareholders was $1.8 million, or $0.02 per diluted share, compared to $9.5 million, or $0.11 per diluted share, in the second quarter of 2012.
The second quarter of 2013 adjusted figures in the preceding paragraph exclude income of $4.5 million for the recognition of deferred gains related to OfficeMax’s investment in Boise Cascade Holdings, L.L.C. reflected in the Corporate and Other segment, as well as charges of $11.7 million in our Corporate and Other segment for certain costs related to our pending merger with Office Depot, and severance charges of $4.5 million primarily related to reorganizations in our Contract segment sales and supply chain operations. The second quarter of 2012 adjusted figures exclude $2.1 million of dividend income from the investment in Boise Cascade Holdings, L.L.C. Series A Units, which were subsequently redeemed in the first quarter of 2013. The net effect of these items decreased net income by $11.8 million, or $0.14 per diluted share, for the second quarter of 2013, and increased net income by $1.3 million, or $0.01 per diluted share, for the second quarter of 2012.
Contract Segment Results
Contract segment sales decreased 3.3% compared to the prior year period to $849.7 million in the second quarter of 2013. This decrease reflected a U.S. Contract operations sales decrease of 2.5% and an international Contract operations sales decrease of 5.2% in U.S. dollars (a decrease of 5.0% on a local currency basis). The U.S. Contract performance reflects weaker sales to existing corporate accounts.
Contract segment gross profit margin decreased to 21.8% in the second quarter of 2013 from 22.3% in the second quarter of 2012, reflecting lower International Contract gross margins and flat U.S. Contract gross margins. Contract segment operating, selling and general and administrative expenses as a percentage of sales increased to 19.8% in the second quarter of 2013 from 19.4% in the second quarter of 2012, primarily due to deleveraging of expenses from lower sales and continued investments in growth and profitability initiatives. Contract segment income was $17.1 million, or 2.0% of sales, in the second quarter of 2013 compared to $25.7 million, or 2.9% of sales, in the second quarter of 2012.
Retail Segment Results
Retail segment sales in the second quarter of 2013 decreased 5.6% to $683.4 million compared to the second quarter of 2012, reflecting a same-store sales decrease on a local currency basis of 3.6% primarily due to decreased traffic and lower technology product category sales. The decrease reflected a U.S. Retail operations same-store sales decrease of 3.7%, and a Mexico retail operations same-store sales decrease of 3.4% on a local currency basis.
Retail segment gross profit margin was 29.5% in both the second quarter of 2013 and the second quarter of 2012 due to higher customer margins, offset by deleveraging of occupancy costs due to lower sales and an expiration of favorable purchase accounting for leases. Retail segment operating, selling and general and administrative expenses as a percentage of sales were 29.3% in the second quarter of 2013 and 29.1% in the second quarter of 2012, primarily due to deleveraging of expenses due to lower sales. Retail segment income was $1.9 million, or 0.3% of sales, in the second quarter of 2013 compared to $2.8 million, or 0.4% of sales, in the second quarter of 2012.
OfficeMax ended the second quarter of 2013 with a total of 932 Retail stores, consisting of 842 Retail stores in the U.S. and 90 Retail stores in Mexico. During the second quarter of 2013, OfficeMax closed four stores in the U.S.; and opened one store and closed one in Mexico.
Corporate and Other Segment Results
The Corporate and Other segment includes support staff services and certain other expenses that are not fully allocated to the Contract and Retail segments. Corporate and Other segment operating, selling and general and administrative expenses were $8.2 million in the second quarter of 2013 compared to $7.5 million in the second quarter of 2012.
Balance Sheet and Cash Flow
As of June 29, 2013, OfficeMax had total debt of $235.4 million, excluding $735.0 million of non-recourse debt related to the Wells Fargo-backed timber notes.
During the first six months of 2013, OfficeMax generated $20.7 million of cash flow from operations and invested $48.3 million in capital expenditures. This cash flow from operations did not include the recently announced $72 million of proceeds received from Boise Cascade Holdings, L.L.C. in July 2013.
Outlook
Third Quarter 2013
Based on the current environment, OfficeMax anticipates that total company sales for the third quarter will be lower than the third quarter of 2012, including the projected unfavorable impact of foreign currency translation. Additionally, OfficeMax anticipates that for the third quarter of 2013, operating income margin will be lower than the adjusted margin rate for the prior year period, but higher than the 1.0% adjusted margin rate for the first half of 2013.
Full Year 2013
For the full year 2013, OfficeMax anticipates total company sales will be lower than the prior year period, including the projected unfavorable impact of foreign currency translation. For the full year 2013, OfficeMax anticipates adjusted operating income margin will be lower than the adjusted margin rate for the prior year, but higher than the 1.0% adjusted margin rate for the first half of 2013.
Outlook for operating income margin for both the third quarter and full year 2013 includes the negative impact from the expiration of the favorable purchase accounting for leases related to the 2003 acquisition of the U.S. Retail business, and discontinuation of dividend income due to the redemption of the Boise Cascade Holdings L.L.C. units. Together the discontinuation of these items reduce adjusted operating income by approximately $5 million in the third quarter and $18 million for the full year 2013.
The company’s full year 2013 outlook also includes the following:
— Capital expenditures of approximately $80-90 million, primarily related
to investments in IT, ecommerce, infrastructure improvements, and
maintenance
— Depreciation & amortization of approximately $75-80 million
— Pension expense of approximately $2-3 million, and cash contributions to
the frozen pension plans of approximately $3 million
— Interest expense of approximately $66-68 million and interest income of
approximately $42-44 million
— Adjusted effective tax rate of approximately 34%
— Cash flow from operations, excluding costs related to our pending merger
with Office Depot, to exceed capital expenditures
— A net reduction in total Retail square footage for the year, with U.S.
activity including the expected closing of 25-30 stores, selective
relocation and downsizing of stores, and selective openings of smaller
store concepts; Mexico activity including an expected five store
openings and two closures
Merger Update
On February 20, 2013, OfficeMax and Office Depot announced their entry into an agreement to combine their companies in a merger of equals. On July 10, 2013, stockholders of both companies approved the merger. On July 29, 2013, based on integration planning work to date, the companies reaffirmed confidence in the ability to realize $400-600 million of total annual cost synergies by the end of the third year following the close of merger. The companies continue to work cooperatively with the FTC as it conducts its review of the proposed combination, and remain optimistic that the merger will close by the end of calendar year 2013.
“We are extremely pleased with the progress of our joint integration planning teams, which will facilitate a smooth transition for all of our stakeholders and allow us to begin capturing identified cost synergies immediately following the close of our pending merger transaction,” said Saligram.