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Tough Second Half Awaits OfficeMax

Updated from 9:18 a.m. EDT

OfficeMax (OMX) narrowed its quarterly loss Tuesday, helped by strong comparable-store sales that held up despite an extensive store remodeling program.

More difficult same-store comparisons loom in the second half and the company, which is in the midst of being acquired by forest products giant Boise Cascade (BCC), will need the economy to cooperate if it wants the performance to continue.

In the quarter ended July 26, the Cleveland-based retail chain lost $26.7 million, or 21 cents a share, compared to last year's loss of $33.4 million, or 27 cents a share. The results don't reflect a normalized tax benefit due to the required accounting treatment of deferred tax assets and related valuation allowance.

Assuming a 40% tax rate and including an after-tax impact of a penny a share, the company said it would have lost $16.2 million, or 13 cents a share. On that basis, analysts were expecting a loss of 12 cents a share. The results compare to a loss of $20.2 million, or 16 cents a share, in the year-ago quarter.

Total sales rose to $1.05 billion from $1.01 billion. Strong categories included electronics, ink and toner, shredders, office labels and digital imaging. The strength should continue for the rest of the year, OfficeMax predicted.

Consolidated same-store sales increased 4% and domestic same-store sales rose 5%, helped by both higher traffic and a higher average purchase. Also, the amount of out-of-stock merchandise fell from the year earlier, the company said. Last year, comparable-store sales rose 3% in the second quarter.

Analysts praised the domestic results. "Not many retailers have posted 5% comps in the second quarter," said analyst Todd Kuhrt of Midwest Research-Maxus.

But comparable-store sales in the company's Mexico segment fell 20% because of devaluation in the Mexican peso against the U.S. dollar. Sales of certain larger items, such as computers, also fell, OfficeMax said.

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