OfficeMax 1Q profit rises on cost controls, investment

OfficeMax Inc. posted a 9 percent increase in first-quarter profit Wednesday, overcoming a substantial drop in sales with help from a gain from its investment in Boise Cascade LLC. But earnings fell short of expectations, sending its stock sharply lower.

The Naperville-based office supply retailer was hurt by the drop-off in U.S. business and consumer spending, with revenue sinking 6 percent.

OfficeMax said net income after preferred dividends rose to $62.4 million, or 81 cents per share, compared with $57.5 million, or 76 cents per share, a year earlier.

Excluding one-time items, earnings per share were 68 cents -- a penny lower than the consensus estimate of analysts surveyed by Thomson Financial.

Revenue fell to $2.3 billion from $2.44 billion -- $1.2 billion from its contract segment, for business customers, and $1.11 billion from its retail segment.

"Sales and profit declines are concerning," Goldman Sachs analyst Matthew Fassler said in a note to investors.

Shares in OfficeMax fell $1.72, or 8.5 percent, to $18.48 in morning trading.

Chief Executive Sam Duncan said lower sales reflected the weaker economy. He said the company was successful in streamlining operations and pursuing cost controls.

Comparable sales from its retail stores fell 8.7 percent and across all major product categories, the company said. The profit margin dipped to 28.5 percent from 29.3 percent.

Sales from the contract segment decreased more than 12 percent in the United States, offsetting a 15 percent gain in its smaller international business. Gross margins climbed 0.6 percent to 22.7 percent, which the company attributed primarily to increased discipline in account acquisition and retention.

Duncan said the company has boosted its margins in sales to business customers by no longer chasing large but unprofitable accounts.

"We have not stopped going after the right sales," he told analysts on a conference call. "There are business gains we get every day as well as some businesses we do forgo because of the price we need to pay."

OfficeMax, which trails Staples Inc. and Office Depot Inc. among office suppliers, opened a dozen new retail stores in the quarter. As of the end of the quarter, it had 988 retail stores -- 914 in the United States and 74 in Mexico.