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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 - Get Report), 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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