Publish date:

Shortfall Smacks OfficeMax

Shares sink after the office-supplies company misses profit estimates by a wide margin.

Shares of



tumbled Thursday after the office-supplies company missed Wall Street's first-quarter earnings expectation by a wide margin, hurt by weaker profits from its contract business.

Shares of the Naperville, Ill., company were down $5.76, or 12%, to $43.70 in recent trading.

For the first quarter, OfficeMax posted a profit of $57.5 million, or 76 cents a share. A year earlier, the company recorded a loss of $26.1 million, or 37 cents a share, weighed down by several charges.

Excluding items in both periods, earnings per share were flat at 77 cents. Analysts polled by Thomson Financial projected earnings of 93 cents a share for the latest quarter.

TheStreet Recommends

Revenue totaled $2.44 billion, up slightly from $2.42 billion a year ago, but below Wall Street's forecast of $2.46 billion.

OfficeMax's results were hurt by lower margins in its contract segment, which sells supplies directly to businesses. Sales in the segment increased 2.7% to $1.3 billion, but operating income slipped to $59.9 million from $67 million.

The decline came as contract segment margins fell to 22.1% from 23.2% a year earlier, which OfficeMax attributed to new and renewing accounts with lower gross margin rates.

In OfficeMax's retail segment, sales decreased 1.8% to $1.2 billion, primarily because of the closure of 109 stores during the quarter.

Retail same-store sales, or sales at stores open at least a year, increased 0.5%. Adjusted for the company's move to eliminate mail-in rebates and to provide instant rebates, same-store sales rose about 2%.

Retail operating income increased to $64.6 million from $60.6 million.

"Our results for the first quarter showed moderate improvement," Sam Duncan, chairman and CEO, said in a statement. "In our contract segment, we are addressing lower-margin sales which contributed to operating income margin contraction. In our retail segment, we are pleased with continued gross margin expansion which delivered operating income margin improvement."