OfficeMax Reports 4Q Results
February 22, 2007
OfficeMax Incorporated (NYSE: OMX) reported results for the fourth quarter and fiscal year ended December 30, 2006. Net income for the fourth quarter increased to $58.0 million, or $.76 per diluted share, compared with a net loss of $43.1 million, or a loss of $.62 per diluted share, in the fourth quarter of 2005. Net income for the full year 2006 increased to $91.7 million, or $1.19 per diluted share, compared with a net loss of $73.8 million, or $.99 per diluted share, reported in 2005.
Results for the fourth quarter and full year 2006 included items which are not expected to be ongoing. A detailed description of these special items and a reconciliation to the company's GAAP financial results are included in this press release. For the fourth quarter of 2006, net income before special items was $37.2 million, or $.48 per diluted share, compared with net income before special items of $6.0 million, or $.07 per diluted share, in the fourth quarter of 2005. For the full year 2006, net income before special items was $159.2 million, or $2.10 per diluted share, compared with net income before special items of $23.6 million, or $.24 per diluted share, reported in 2005.
"The fourth quarter and full year 2006 represented significant improvement for OfficeMax," said Sam Duncan, Chairman and Chief Executive Officer of OfficeMax. "We delivered on our turnaround plan goals with solid operating income margin expansion in both our Contract and Retail segments."
Contract SegmentOfficeMax Contract segment sales decreased 3.5% in the fourth quarter of 2006 and increased 1.9% for the full year 2006 compared to the fourth quarter and full year 2005, respectively. U.S. Contract sales reflect five fewer selling days in the fourth quarter of 2006 compared to the fourth quarter of 2005. Adjusting for the difference in selling days, total contract sales increased approximately 2% in the fourth quarter of 2006 compared with the same period in 2005 reflecting modest sales growth in both our U.S. and international operations.
Excluding special items, Contract segment operating income increased to $50.8 million in the fourth quarter of 2006 from $29.6 million in the fourth quarter last year. Excluding special items, Contract segment operating income increased to $208.0 million for the full year 2006 from $115.5 million in 2005. Contract segment gross margin increased to 22.5% in the fourth quarter of 2006 from 21.7% in the fourth quarter of 2005, primarily due to improved vendor income and lower delivery costs as well as a focus on higher margin sales opportunities. Contract segment operating income in the fourth quarter of 2006 benefited from reduced integration costs and targeted cost reduction programs partially offset by the impact of deleveraging fixed costs due to the fewer selling days compared with the fourth quarter of 2005.
Retail SegmentOfficeMax Retail segment same-store sales decreased 0.4% in the fourth quarter of 2006 and increased 0.1% for the full year 2006. 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 2% during the fourth quarter and 1% for the full year 2006. Retail segment total sales decreased 13% in the fourth quarter of 2006 and 6% for the full year 2006 compared to the fourth quarter and full year of 2005, respectively due primarily to the impact of one less week compared to the fourth quarter and full year 2005, as well as the impact of 109 strategic store closings completed during the first quarter of 2006.
Excluding special items, Retail segment operating income for the fourth quarter of 2006 increased to $42.3 million from $22.4 million in the fourth quarter of 2005. Excluding special items, Retail segment operating income increased to $175.8 million for the full year 2006 from $45.8 million in 2005. Retail segment gross margin increased to 29.1% for the fourth quarter of 2006 from 25.8% in the fourth quarter of 2005 due primarily to a more effective promotional strategy and improved vendor income. Retail segment operating income in the fourth quarter of 2006 benefited from targeted cost reduction programs, including reduced store labor and advertising expense, partially offset by the impact of deleveraging fixed costs due to one less week compared to the fourth quarter of 2005 and higher allocated general and administrative expense.
During the fourth quarter of 2006, OfficeMax opened 29 new retail stores and closed 2 stores, ending the quarter and the year with 911 retail stores compared with 970 stores at the end of the fourth quarter of 2005.
Corporate and Other SegmentThe OfficeMax Corporate and Other segment includes support staff services and certain other expenses that are not fully allocated to the Retail and Contract segments. Excluding special items, Corporate and Other segment operating expense increased by $7.0 million to $17.0 million in the fourth quarter of 2006 and increased by $10.0 million to $71.6 million for the full year 2006. The increase in Corporate and Other segment operating expense, excluding special items, for the fourth quarter of 2006 was primarily due to increased incentive compensation expense, partially offset by reduced legacy company costs.
During the fourth quarter of 2006, OfficeMax generated $35.9 million in cash from operations and used $78.0 million for capital expenditures. For the full year of 2006, OfficeMax generated $375.7 million in cash from operations and used $174.8 million for capital expenditures. At December 30, 2006, OfficeMax reported total debt of $409.9 million, excluding the timber securitization notes, and cash and cash equivalents of $282.1 million.
Forward-Looking StatementsSome 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 future events and developments and 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 its actual results will be consistent with such 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 which may cause results to differ from expectations are included in the company's Annual Report on Form 10-K for the year ended December 31, 2005, including under the caption "Cautionary and Forward-Looking Statements," in Item 1A of that form, and in the company's other filings with the SEC.
