OfficeMax Matches Targets

The retailer says its turnaround is taking shape.
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OfficeMax

(OMX)

posted a fourth-quarter loss but matched Wall Street estimates on an adjusted basis.

The Itasca, Ill., office supplies retailer lost $43 million, or 62 cents a share, for the quarter ended Dec. 31, reversing the year-ago profit of $700,000, or 2 cents a share. Excluding items, the latest-quarter profit was 7 cents a share, matching the Thomson Financial analyst consensus estimate.

"We are pleased with the improved performance in the fourth quarter of 2005, including strong expense control in Contract and substantial margin expansion in Retail," said CEO Sam Duncan. "With the fourth quarter Contract and Retail results, we continue to believe that OfficeMax is positioned to achieve the 2006 and intermediate-term goals that we outlined in our turnaround plan last month."

OfficeMax Contract segment sales increased 9.4% in the fourth quarter of 2005 and 5.9% for the full year 2005 compared to the fourth quarter and full year 2004, respectively. Fourth-quarter 2005 Contract sales increased due to sales growth of 9.8% in U.S. Contract operations and 8.2% in international Contract operations. U.S. Contract sales in the fourth quarter of 2005 were affected by a change in the fiscal quarter end to conform to our Retail segment fiscal reporting period.

As a result, U.S. Contract sales benefited from five additional selling days in the fourth quarter of 2005 compared to the fourth quarter of 2004. Adjusting for the difference in selling days, and excluding the impact of acquisitions in the international Contract businesses, total Contract sales increased 1.1% in the fourth quarter of 2005 compared to the same period in 2004.

The improvement in Contract segment operating profit in the fourth quarter of 2005 compared to the prior year was due to improved sales and expense controls, which more than offset the declines in gross margin. Fourth-quarter 2005 gross margin declined primarily due to a continuing competitive pricing environment in the U.S. large customer market and higher delivery costs from increased energy prices. Fourth-quarter U.S. Contract gross margin declines were partially offset by improved gross margins in Canadian operations and a higher level of margin contribution by our U.S. middle market operations.

OfficeMax Retail segment sales increased 6.8% in the fourth quarter of 2005 and 1.1% for the full year 2005 compared to the fourth quarter and full year of 2004, respectively. Retail sales in 2005 included one additional selling week during the year compared to 2004, with sales for the extra week totaling about $75 million.

Same-store sales decreased 1% for both the fourth quarter and full year 2005. Retail sales for the fourth quarter of 2005 were impacted by varying sales performance among geographic regions and flat same-store sales in most product categories, partially offset by strong sales in Print and Document Services. During the fourth quarter of 2005, sales increased in the West, Southeast and Mountain regions and declined in the Northeast and Midwest regions.

Gross margin increased in the fourth quarter of 2005 in nearly all product categories due to the successful execution of a more effective promotional strategy, partially offset by significantly higher fuel and utility prices.

During the fourth quarter of 2005, OfficeMax opened 18 new retail stores and closed three stores, ending the year with 970 retail stores compared to 940 stores at year-end 2004.