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OfficeMax Reports Second Quarter 2006 Financial Results
ITASCA, Ill., Aug. 06 — OfficeMax® Incorporated today reported results for the second quarter ended July 1, 2006. For the second quarter, the company reported net income of $27.4 million, or $.35 per diluted share, compared with a net loss of $21.5 million, or $.28 per diluted share, in the second quarter of 2005.Results for the second quarter of 2006 include various items which are not expected to be ongoing, including credits from adjustments to the store closing and additional consideration reserves, partially offset by charges related to our previously announced headquarters consolidation. A full description of these special items and a reconciliation to the company’s reported GAAP financial results are included in this press release. For the second quarter of 2006, net income before special items was $23.0 million, or $.29 per diluted share, compared with a net loss before special items of $10.2 million, or $.14 per diluted share, in the second quarter of 2005.”We are pleased with our second quarter operating performance and the resulting increase in our financial outlook for full year 2006,” said Sam Duncan, Chairman and Chief Executive Officer of OfficeMax. “In our Contract segment, through a continued focus on profitable sales and cost efficiencies, we achieved significant operating income growth. In our Retail segment, significantly lower inventory clearance activity, reduced shrinkage, and cost controls provided strong operating income improvement.”
Contract Segment
OfficeMax Contract segment sales increased 0.8% in the second quarter of 2006 compared to the second quarter of 2005 reflecting flat sales growth in our U.S. Contract operations and increased sales from our international operations.Contract segment operating income increased to $44.4 million in the second quarter of 2006 compared to $23.7 million in the second quarter of 2005. Contract segment gross margin increased to 22.1% in the second quarter of 2006 from 21.9% in the second quarter of 2005, primarily as a result of several margin enhancement initiatives, partially offset by higher delivery costs due to increased energy prices. Contract segment operating income benefited from targeted cost reduction programs, including the impact of our distribution center consolidation and lower promotional and marketing costs, as well as significant improvement in our Canadian operations.
Retail Segment
OfficeMax Retail segment sales decreased 6.2% in the second quarter of 2006 compared to the second quarter of 2005 due primarily to the 109 strategic store closings completed in the first quarter of 2006. Same-store sales for the second quarter of 2006 decreased approximately 1%.Retail operating income for the second quarter of 2006 included a $9.0 million pre-tax benefit resulting from an adjustment to the reserve for retail store closures. Excluding this special item, operating income increased to $18.2 million in the second quarter of 2006 compared to an operating loss of $15.5 million in the second quarter of 2005. Retail segment gross margin increased to 29.7% in the second quarter of 2006 compared with 25.6% in the second quarter of 2005, due to significantly lower inventory clearance activity, reduced shrinkage, and a more effective promotional strategy. Retail segment operating income in the second quarter of 2006 also benefited from targeted cost reduction programs including reduced store labor expense, offset by higher allocated general and administrative expense as well as store incentive compensation expense.During the second quarter of 2006, OfficeMax opened 9 new retail stores and closed 2 stores, ending the quarter with 874 retail stores compared with 946 stores at the end of the second quarter of 2005.
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