Business News

OfficeMax Reports Fourth Quarter and Full Year 2010 Financial Results

Wednesday 16. February 2011 - OfficeMax Incorporated (NYSE: OMX) today announced the results for its fiscal fourth quarter and full year ended December 25, 2010. Total sales were $1,766.2 million in the fourth quarter of 2010, a decrease of 2.4% from the fourth quarter of 2009, while total sales for the full year 2010 decreased 0.9% to $7,150.0 million compared to the full year 2009. For the fourth quarter of 2010, OfficeMax reported net income available to OfficeMax common shareholders of $12.1 million, or $0.14 per diluted share. For the full year 2010, OfficeMax reported net income available to OfficeMax common shareholders of $68.6 million, or $0.79 per diluted share.

Ravi Saligram, President and CEO of OfficeMax, said, “I am pleased with OfficeMax’s performance in 2010 and proud that our team more than doubled the company’s adjusted operating income on a year-over-year basis through significantly improved gross margins as well as strong expense control across our organization.”
Consolidated Results
(in millions, except per-share
amounts) 4Q10 4Q09 FY10 FY09
—- —- —-
Sales $1,766.2 $1,810.5 $7,150.0 $7,212.1
Sales decline (from prior year
period) -2.4% -3.9% -0.9% -12.8%
Gross profit $446.0 $442.4 $1,849.7 $1,737.6
Gross profit margin 25.3% 24.4% 25.9% 24.1%
Operating income (loss) $28.1 $(29.2) $146.5 $(4.0)
Adjusted operating income (loss) $30.8 $(2.0) $160.6 $62.9
Adjusted operating income (loss)
margin 1.7% -0.1% 2.2% 0.9%
——————————– — —- — —
Adjusted diluted income (loss) per
common share $0.16 $(0.03) $0.89 $0.24
———————————- —– —— —– —–
Adjusted operating income (loss) and adjusted diluted income (loss) per share are non-GAAP financial measures that exclude the effect of certain charges and income described below and in the footnotes to the accompanying financial statements. A reconciliation to the company’s GAAP financial results is included in this press release.
Results for the fourth quarter and full year 2010 and 2009 included certain charges and other items that are not considered indicative of core operating activities. Fourth quarter 2010 included non-cash pre-tax charges of $11.0 million to impair fixed assets associated with certain of the company’s Retail stores in the U.S.; pre-tax income of $2.8 million to adjust previously established reserves for severance and store closures; and pre-tax income of $5.5 million related to the adjustment of a reserve associated with our legacy building materials manufacturing facility near Elma, Washington due to the sale of the facility’s equipment and the termination of the lease. Fourth quarter 2009 results included a non-cash pre-tax impairment charge of $17.6 million related to certain of our Retail stores in the U.S. and Mexico; $9.6 million of severance and other pre-tax charges, principally related to reorganizations of our U.S. and Canadian Contract sales forces and customer fulfillment centers, as well as a reduction of our Retail store staffing; and a $14.9 million tax benefit resulting from the reversal of a reserve associated with industrial revenue bonds that were under appeal with the Internal Revenue Service.
Adjusted operating income in the fourth quarter of 2010 was $30.8 million, or 1.7% of sales, compared to a loss of $2.0 million in the fourth quarter of 2009. Adjusted net income available to OfficeMax common shareholders in the fourth quarter of 2010 was $13.8 million, or $0.16 per diluted share, compared to a net loss of $2.3 million, or $0.03 per diluted share, in the fourth quarter of 2009.
Contract Segment Results
(in millions) 4Q10 4Q09 FY10 FY09
Sales $913.4 $947.8 $3,634.2 $3,656.7
Sales decline (from prior year
period) -3.6% -0.6% -0.6% -15.2%
Gross profit margin 22.8% 21.8% 22.8% 20.8%
——————- —- —- —- —-
Segment income margin 2.4% 1.5% 2.6% 1.6%
——————— — — — —
Contract segment sales decreased 3.6% compared to the prior year period to $913.4million in the fourth quarter of 2010 (a decrease of 5.2% on a local currency basis). This decline reflected a U.S. Contract operations sales decrease of 5.1% and an international Contract operations sales decrease of 0.4% in U.S. dollars (a sales decrease of 5.6% on a local currency basis).
Contract segment gross profit margin increased to 22.8% in the fourth quarter of 2010 from 21.8% in the fourth quarter of 2009, reflecting improved gross profit margin at both the U.S. and International businesses primarily due to OfficeMax’s profitability initiatives. Contract segment operating, selling and general and administrative expenses as a percentage of sales increased to 20.4% in the fourth quarter of 2010 from 20.3% in the fourth quarter of 2009. The slight increase was a result of costs associated with growth and profitability initiatives, mostly offset by lower incentive compensation expense. Contract segment income was $21.6 million, or 2.4% of sales, in the fourth quarter of 2010 compared to $14.0 million, or 1.5% of sales, in the fourth quarter of 2009.
Retail Segment Results
(in millions) 4Q10 4Q09 FY10 FY09
Sales $852.8 $862.7 $3,515.8 $3,555.4
Same-store sales decrease (from prior
year period) -0.7% -6.7% -0.8% -11.0%
Gross profit margin 27.8% 27.3% 29.1% 27.4%
——————- —- —- —- —-
Segment income (loss) margin 2.2% -0.8% 3.0% 1.3%
—————————- — —- — —
Retail segment sales decreased 1.1% to $852.8 million in the fourth quarter of 2010 compared to the fourth quarter of 2009, reflecting a same-store sales decrease of 0.7%. A modest decline in same-store sales in the U.S. was mostly offset by stronger sales in Mexico.
Retail segment gross profit margin increased to 27.8% in the fourth quarter of 2010 from 27.3% in the fourth quarter of 2009, primarily due to reduced inventory shrinkage, occupancy and freight expense. Retail segment operating, selling and general and administrative expenses as a percentage of sales decreased to 25.6% in the fourth quarter of 2010 compared to 28.1% in the fourth quarter of 2009 primarily due to lower incentive compensation and benefits related expenses, partially offset by costs associated with growth and profitability initiatives. Retail segment income was $18.9 million, or 2.2% of sales, in the fourth quarter of 2010 compared to a loss of $6.8 million, or 0.8% of sales, in the fourth quarter of 2009.
OfficeMax ended 2010 with a total of 997 Retail stores, consisting of 918 Retail stores in the U.S. and 79 Retail stores in Mexico. During the fourth quarter of 2010, OfficeMax opened one Retail store in Mexico and closed two Retail stores in the U.S. For the full year 2010, OfficeMax opened two Retail stores in Mexico and closed 15 Retail stores in the U.S.
Corporate and Other Segment Results
The Corporate and Other segment includes support staff services and certain other expenses that are not fully allocated to the Retail and Contract segments. Corporate and Other segment operating, selling and general and administrative expenses was $9.7 million in the fourth quarter of 2010 compared to $9.2 million in the fourth quarter of 2009.
Balance Sheet and Cash Flow
As of December 25, 2010 OfficeMax had total debt of $275.0 million, excluding $1,470 million of non-recourse debt related to timber securitization notes that have recourse limited to the timber installment notes receivable and related guarantees.
During the full year 2010, OfficeMax generated $88.1 million of cash provided by operations, net of $44.4 million of payment of loans against company-owned life insurance policies as well as $72.4 million of increased working capital primarily from higher international inventories and the timing of payments and obligations.
OfficeMax invested $43.4 million for capital expenditures in the fourth quarter of 2010 compared to $14.3 million in the fourth quarter of 2009. For the full year 2010, OfficeMax invested $93.5 million for capital expenditures compared to $38.3 million in 2009.
Outlook
Bruce Besanko, EVP, Chief Financial Officer and Chief Administrative Officer of OfficeMax, said, “To date in 2011, we have experienced a variety of challenges for our business including adverse weather conditions, heightened promotional activity, and a lack of favorable economic conditions, and we anticipate that some of these challenges may persist. As a result, we are being cautious in our outlook for the year and will continue to be disciplined in our expense and cash flow management to maintain our strong financial foundation.”
Based on these trends, OfficeMax anticipates that for the first quarter, total company sales will be lower than the prior year’s first quarter, including the favorable impact of foreign currency translation, and the adjusted operating income margin rate will be significantly lower than the prior year’s first quarter. For the full year 2011, OfficeMax anticipates that total company sales will be flat, to slightly higher than, 2010, including the favorable impact of foreign currency translation and the benefit of a 53rd week, and the adjusted operating income margin rate will be in line with, to slightly lower than, the prior year.
The company’s outlook also includes the following assumptions for the full year 2011:
— Capital expenditures of approximately $100 million, primarily related to
technology, ecommerce, and infrastructure investments and upgrades
— Depreciation & amortization of approximately $85-95 million
— Pension expense of approximately $7-12 million
— Interest expense of approximately $72-77 million and interest income of
approximately $41-44 million
— Effective tax rate approximately in line with the effective tax rate in
2010
— Cash flow from operations in line with, or slightly higher than capital
expenditures
— Reduction in Retail store count for the year with approximately 15
planned store closures in the U.S., and approximately 5 store openings
in Mexico.
Mr. Saligram added, “Given the uncertainty of the economic environment, we will continue in the near term to remain focused on leveraging the company’s strength in cost control and improving gross margin. However, we are simultaneously evolving the organization to a growth-orientated mind set and putting in place building blocks needed to enable growth and create a well-differentiated company.”
Forward-Looking Statements
Certain statements made in this press release and other written or oral statements made by or on behalf of the company constitute “forward-looking statements” within the meaning of the federal securities laws, including statements regarding the company’s future performance, as well as management’s expectations, beliefs, intentions, plans, estimates or projections relating to the future. Management believes that these forward-looking statements are reasonable. However, the company cannot guarantee that the macroeconomy will perform within the assumptions underlying its projected outlook; that its initiatives will be successfully executed and produce the results underlying its expectations, due to the uncertainties inherent in new initiatives, including customer acceptance, unexpected expenses or challenges, or slower-than-expected results from initiatives; or that its actual results will be consistent with the forward-looking statements and you should not place undue reliance on them. These statements are based on current expectations and speak only as of the date they are made. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. Important factors regarding the company that may cause results to differ from expectations are included in the company’s Annual Report on Form 10-K for the year ended December 26, 2009, under Item 1A “Risk Factors”, and in the company’s other filings with the SEC.