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OfficeMax Posts Higher-Than-Expected Second-Quarter Earnings

Reuters
Wednesday, 1 Aug 2007 | 8:20 AM ET

Office supplies retailer OfficeMax posted higher-than-expected second-quarter earnings Wednesday, helped by better retail sales and improved margins, and its shares rose as much as 11 percent.

Second-quarter net income was $27.4 million, or 35 cents per share, unchanged from a year earlier. Analysts were expecting profit of 32 cents per share, according to Reuters Estimates.

"With low expectations following a very weak quarter from Office Depot last week, these results provide confidence that the office supply retail sector is holding up," Credit Suisse analyst Gary Balter wrote in a research note.

OfficeMax, which is focusing on boosting its sales to smaller customers, blamed the slowing economy for a lack of sales from larger customers.

"We've also got to be realistic and look at issues like fuel costs, what that's doing to our economy and how it's taking money out of people's pockets, which is less purchasing power," OfficeMax Chief Executive Sam Duncan said on a call with investors.

Sales Up

Sales rose to $2.13 billion from $2.04 billion, beating the analysts' average estimate of $2.11 billion.

OfficeMax, the third-largest U.S. office supplies retailer behind industry-leading Staples and No. 2 Office Depot , said sales at stores open at least a year rose 1.6 percent. Adjusted for the elimination of mail-in rebates, they increased 2.7 percent.

Also on Wednesday, OfficeMax said it had approved a policy allowing its board to take action against any executive officer whose misconduct contributes to a financial restatement.

In a filing with the U.S. Securities and Exchange Commission, the company said the policy allowed it to recoup incentive compensation or bonuses and cancel any stock awards granted to any executive officer after July 26, 2007. It may also ask for the repayment of stock proceeds.

Last week, Office Depot blamed an anemic U.S. home building market and rising energy costs for its lackluster results, but Goldman Sachs analyst Matthew J. Fassler said in a research note that OfficeMax's results are a good sign.

"We expect this report to have a positive near-term effect on the stock," Goldman Sachs analyst Matthew J. Fassler wrote in a research note.

"Underlying expectations sank sharply in recent weeks as Office Depot's problems cast a pall over the sector. OfficeMax sold off like a 'deal-dependent' stock in recent weeks; we expect the quarter to re-establish the fundamental story as a driver," wrote Fassler, who has a "neutral" rating on the stock.

Since late April, shares of OfficeMax have declined nearly 38 percent through Tuesday's close. Shares of Office Depot meanwhile, are down about 29 percent over the same period, while Staples has slipped 12.6 percent.

OfficeMax was up about 8.5 percent or $2.80 at $35.68 in late-morning trading on the New York Stock Exchange after climbing as high as $36.63.

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