26 October 2006 — Naperville (IL): OfficeMax have reported their results for the third quarter ended September 30, 2006, including net income of $31.4 million, or $.41 per diluted share, compared with a net loss of $3.9 million, or $.07 per diluted share, in the third quarter of 2005.
OfficeMax Contract segment sales increased 1.2 percent in the third quarter of 2006 compared to the third quarter of 2005, reflecting modest sales growth in both US and international operations.
The company’s Contract segment operating income increased to $45.7 million in the third quarter of 2006 from $34.0 million in the third quarter last year. Contract segment gross margin increased to 22.3 percent in the third quarter of 2006 from 21.7 percent in the third quarter of 2005, primarily due to a focus on higher margin sales opportunities, including growing the middle market business and improvement in international operations.
‘Max also confirmed the Contract segment operating income in the third quarter of 2006 also benefited from reduced integration costs and targeted cost reduction programmes.
However, OfficeMax Retail segment same-store sales growth during the third quarter was described as "flat".
Adjusted for the company’s initiative to eliminate mail-in rebates and to provide instant rebates in lieu of national, vendor-sponsored mail-in rebates, same-store sales improved by approximately 1 percent during the third quarter.
Retail segment total sales decreased 5 percent in Q3 compared with the same time period in the previous year, due primarily to the impact of 109 strategic store closings completed at the beginning of the year.
Retail segment operating income for the third quarter of 2006 increased to $54.8 million from $16.1 million in the third quarter of 2005. Retail segment gross margin increased to 30.1 percent for the third quarter of 2006 from 26.7 percent last year due primarily to more effective promotional activity.
Retail segment operating income in the third quarter of 2006 benefited from targeted cost reduction programmes, including reduced store labour and advertising expense, partially offset by higher allocated general and administrative expense.
During the third quarter of 2006, OfficeMax opened 10 new retail stores, ending the quarter with 884 retail stores compared with 955 stores at the end of the third quarter of 2005.
During the third quarter of 2006, OfficeMax generated $188.8 million in cash from operations and used $49.8 million for capital expenditures. For the first nine months of 2006, OfficeMax generated $339.8 million in cash from operations and used $96.8 million for capital expenditures. At September 30, 2006, net debt, or total debt excluding the timber securitisation notes less cash and cash equivalents and restricted investments, was $74.0 million.
OfficeMax currently expects full year 2006 operating income margin to be in the middle of the previously-announced range of 3 to 3.5 percent, excluding special items. Special items, including charges for retail store closures, the Contract segment reorganisation and the company’s headquarters consolidation, are expected to reduce operating income margin by approximately 1.5 percent for the full year 2006.
"We are pleased with our third quarter results," said Sam Duncan, chairman and CEO of OfficeMax. "In both our Contract and Retail segments, we continued to execute our turnaround plan objectives to deliver substantial operating income margin growth."