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Office Max Isn't Exactly Printing Money

Posted: May 02, 2008 11:29 AM by Glenn Curtis

Tickers in this Article: OMX, SPLS, ODP

Office supply retailer OfficeMax (NYSE:OMX) isn’t printing money these days, and if its first quarter results are any indicator I think that it could take a couple of quarters for the Illinois based company to get back on track.

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No Top Line Punch
OfficeMax’s first quarter reported 68 cents per share a penny below Wall Streets estimates and below the roughly 77 cents a share it earned in the comparable quarter last year according to Reuter’s. As a result, I think that OfficeMax’s revenue line is what deserves attention.

OfficeMax generated $2.3 billion in sales this quarter, 5.5% lower than the $2.4 billion it posted last year and below the $2.34 billion that analysts had been expecting. I feel that now is not exactly the time to be letting down the sell side because the group (office supply retailers) are already under pressure. This disappointment will cause analysts to become even more reluctant to stick their necks out and call a turnaround. (To learn how regular investors can build their own financial models, read Do-It Yourself Analyst Predictions.)

Its top line results also remain a bit disconcerting because competitor, Staples (Nasdaq:SPLS), booked a healthy revenue increase in its most recently reported quarter, and Office Depot (NYSE:ODP) another well-known foe, posted a more modest decline of 3%. I think it’ll have a tougher time garnering the favor of analysts and retail investors. I think it will also be hard for the company to convince the Street it’s in full turnaround mode until that line item improves.

Comps Don’t Lie
In the quarter the company posted a same-store-sales decline of 8.7%. That’s a bad number in my opinion for a couple of reasons. First and foremost it was going up against what I would think would be a relatively easy comparison because last year’s first quarter only had a 0.5% same-store increase.

Staples comps only declined 6% in North America and 1% in Europe. However, I would also point out that Staples seemed to have a little tougher comparison. The year before its North American retail comps were up 1% and its European comps were up 5%.

Office Depot reported a 9% decline in the U.S. and Canadian comps. In last year’s quarter its comp was minus 3%.

In any case the comparisons to its prior performance and its peers is not particularly inspiring, and again demonstrates to me that the company, in spite of its efforts, is having a tough time acclimating to this operating environment. (For further reading, see Analyzing Retail Stocks.)

Bottom Line
OfficeMax has seen better days. Its first quarter sales and comparable store numbers are, in my opinion, the biggest concern. Until those numbers begin to show improvement, I just think it makes sense to avoid the temptation to bottom fish the stock.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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