Business News

OfficeMax Reports First Quarter 2013 Financial Results

Friday 10. May 2013 - - Continues Double-Digit Sales Growth for OfficeMax.com - Maintains High Quarterly Customer Retention Rate in U.S. Contract - Launches First-Of-Its-Kind OfficeMax Business Solutions Center - Results Include the Previously Announced Approximately $130 Million of Cash Proceeds From Boise Cascade Holdings, L.L.C.

OfficeMax Incorporated (NYSE: OMX), a leading provider of office and facility supplies, technology and services, today announced the results for its fiscal first quarter ended March 30, 2013.
Consolidated Results
Reported Results
Total sales were $1,766.7 million in the first quarter of 2013, as compared to $1,872.9 in the first quarter of 2012. For the first quarter of 2013, OfficeMax reported operating income of $101.9 million compared to $17.8 million in the first quarter of 2012, and net income available to OfficeMax common shareholders of $56.3 million, or $0.64 per diluted share, compared to net income of $4.9 million, or $0.06 per diluted share in the first quarter of 2012.
Adjusted Results
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 first quarter of 2013 decreased 4.3% from the first quarter of 2012.
For the first quarter of 2013, adjusted operating income was $22.4 million, or 1.3% of sales, compared to $41.0 million, or 2.2% of sales, in the first quarter of 2012; and adjusted net income available to OfficeMax common shareholders was $10.1 million, or $0.11 per diluted share, compared to $19.0 million, or $0.22 per diluted share, in the first quarter of 2012.
The first quarter of 2013 adjusted figures in the preceding paragraph exclude pre-tax income of $85.4 million in the Corporate and Other segment for the recognition of deferred gains, net of fees, related to OfficeMax’s investment in Boise Cascade Holdings, L.L.C., as well as a pre-tax charge of $6.9 million in our Corporate and Other segment for certain costs related to our pending merger with Office Depot. The first quarters of 2013 and 2012 adjusted figures also exclude $1.0 million and $2.1 million, respectively, of pre-tax dividend income from the investment in Boise Cascade Holdings, L.L.C. Series A Units. Dividend income was discontinued in the first quarter of 2013 when these units were redeemed. The first quarter of 2012 adjusted figures also exclude pre-tax charges of $25.3 million in our Retail segment related to store closures in the U.S. The net effect of these items is increased net income of $46.3 million, or $0.52 per diluted share, for the first quarter of 2013, and decreased net income of $14.2 million, or $0.16 per diluted share, for the first quarter of 2012.
“We experienced a challenging first quarter, with a sales decline that reflected weak macroeconomic conditions and continued industry declines in technology sales,” said Ravi Saligram, President and CEO of OfficeMax. “We will continue to drive gross margin improvement and have put in place a significant cost reduction plan that should improve results in the second half of the year.”
Contract Segment Results
Contract segment sales decreased 4.1% compared to the prior year period to $921.3 million in the first quarter of 2013. This decrease reflected a U.S. Contract operations sales decrease of 3.5% and an international Contract operations sales decrease of 5.4% in U.S. dollars (a decrease of 5.2% on a local currency basis). Fewer work days in the first quarter of 2013, compared to the first quarter of 2012, negatively impacted the Contract segment sales decline by approximately one percentage point, and negatively impacted the international Contract operations sales decline by approximately three percentage points. The U.S. Contract performance primarily reflects weaker sales to new and existing corporate accounts, especially in the government sector.
Contract segment gross profit margin increased to 22.7% in the first quarter of 2013 from 22.4% in the first quarter of 2012, reflecting higher customer margins. Contract segment operating, selling and general and administrative expenses as a percentage of sales increased to 21.0% in the first quarter of 2013 from 19.6% in the first quarter of 2012, primarily due to deleveraging of expenses due to lower sales and investments in growth and profitability initiatives. Contract segment income was $15.4 million, or 1.7% of sales, in the first quarter of 2013 compared to $27.1 million, or 2.8% of sales, in the first quarter of 2012.
Retail Segment Results
Retail segment sales in the first quarter of 2013 decreased 7.3% to $845.4 million compared to the first quarter of 2012, reflecting a same-store sales decrease on a local currency basis of 5.4% primarily due to decreased traffic and lower technology product category sales. The decrease reflected a U.S. Retail operations same-store sales decrease of 5.7%, and a Mexico retail operations same-store sales decrease of 2.1% on a local currency basis.
Retail segment gross profit margin increased to 29.6% in the first quarter of 2013 from 29.3% in the first quarter of 2012 due to higher customer margins driven primarily by a sales mix shift from the relatively lower margin technology category as well as less promotional activity and lower product costs from profitability initiatives, partially 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 27.6% in the first quarter of 2013 and 26.8% in the first quarter of 2012, primarily due to deleveraging of expenses due to lower sales. Retail segment income was $16.2 million, or 1.9% of sales, in the first quarter of 2013 compared to $22.8 million, or 2.5% of sales, in the first quarter of 2012.
In the first quarter, OfficeMax announced its new OfficeMax Business Solutions Center. The new store format is a first of its kind for OfficeMax in the U.S., offering 5,000 square feet of specially tailored business services, solutions and products delivered by expert associates to help local entrepreneurs grow their businesses.
OfficeMax ended the first quarter of 2013 with a total of 936 Retail stores, consisting of 846 Retail stores in the U.S. and 90 Retail stores in Mexico. During the first three months of 2013, OfficeMax closed five 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 $9.3 million in the first quarter of 2013 compared to $8.9 million in the first quarter of 2012.
Balance Sheet and Cash Flow
As of March 30, 2013, OfficeMax had total debt of $237.2 million, excluding $735.0 million of non-recourse debt related to the Wells Fargo-backed timber notes.
During the first three months of 2013, OfficeMax generated $32.9 million of cash flow from operations and invested $28.4 million in capital expenditures. Cash flow from operations included $46.1 million in dividend proceeds from Boise Cascade Holdings, L.L.C.
“Our balance sheet and financial position remain strong, enabling us to continue investment in our core strategic initiatives,” said Bruce Besanko, EVP, Chief Financial Officer and Chief Administrative Officer of OfficeMax. “We’re very pleased to announce the plan to use the proceeds of our monetized Boise asset to distribute a special dividend to shareholders.”
Outlook
Second Quarter 2013
Year-over-year total company sales trends in April continued to be negative, yet slightly improved compared to the first quarter. Based on the current environment, OfficeMax anticipates that total company sales for the second quarter will be lower than the second quarter of 2012, including the projected favorable impact of foreign currency translation. Additionally, OfficeMax anticipates that for the second quarter of 2013, operating income margin will remain positive, but significantly lower than the adjusted margin for the prior year period.
Full Year 2013
For the full year 2013, OfficeMax anticipates that total company sales will be lower than the prior year period, including the projected favorable impact of foreign currency translation. Year-over-year sales declines are expected to continue throughout the year, but at a less negative rate than the first quarter of 2013. For the full year 2013, OfficeMax anticipates that operating income margin will be lower than the adjusted margin for the prior year, but higher than the adjusted margin for the first quarter of 2013.
Outlook for operating income margin for both the second 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 a Boise Cascade Holdings L.L.C. investment security. Together these items reduce 2013 adjusted operating income by approximately $4 million in the second quarter and $18 million for the full year.
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 $3 million, and cash contributions to
the frozen pension plans of approximately $3 million
— Interest expense of approximately $65-69 million and interest income of
approximately $42-45 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 15-20 stores, selective
relocation and downsizing of stores, and selective openings of smaller
store concepts; Mexico activity including an expected four store
openings and one closure