A bad quarter for OfficeMax
Shares fall when the world’s No. 3 retailer of office supplies said first-quarter net income was $58.5 million, or 76 cents per share, measure up to with a net loss of $25.1 million, or 37 cents per share, a year earlier, when the company took charges related to moving its headquarters and closing underperforming stores.
Deutsche Bank analyst Mike Baker wrote in a research note. “With less upside likely, we expect estimates to come down and this is what hurt OfficeMax’s stock today,” wrote Baker, who has a “hold” rating on the stock.
“It’s not that it was such a bad quarter for OfficeMax. We think it’s just that after huge upside last year, expectations have gotten too high,” Deutsche Bank analyst Mike Baker wrote in a research note. “With less upside likely, we expect estimates to come down and this is what hurt OfficeMax’s stock today,” wrote Baker, who has a “hold” rating on the stock.
Not including particular bits and pieces, earnings were flat at 77 cents. Analysts’ average forecast was 94 cents per share, according to Reuters Estimates.
Sales increased to $2.44 billion from $2.42 billion a year ago. As the sales increase s in the company’s contract business, it offsets a decrease in retail sales due to last year’s closing of 109 underperforming stores.
The effect came a week after Office Depot Inc., the world’s No. 3 office supplies retailer behind industry- leader Staples Inc. reported sales that missed Wall Street’s outlook due to fewer sales of personal computers and a drop in demand for office furniture.
Margins in the contract business, which sells directly to business and government customers, fell as the company had to charge less for new and renewing accounts.
Gross margin in OfficeMax’s retail section increased as a result of better marketing, but OfficeMax’s … margin progress stopped on a dime, a big surprise after enormous momentum throughout 2006,” said Goldman Sachs analyst Matthew Fassler.
“This shortfall has to call into question the sustainability of the turnaround story, though we need to hear management out as to whether this margin rate will prove the exception or the rule,” Fassler wrote in a research note.
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